Browsing by Author "Berg, Tobias"
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- Market-triggered contingent capital with incomplete informationPublication . Berg, Tobias; Schliephake, EvaWe analyze the equilibria of market-triggered contingent capital if a bank’s asset value is not common knowledge. Using a global game setup with private signals, we characterize the unique equilibrium for the conversion of the market-triggered contingent capital. The conversion likelihood increases with higher bank leverage, a higher face value of contingent capital, and a greater dilution for incumbent shareholders. We further show that the existence of both a private and a public signal constrains the optimal design of contingent capital for which a unique equilibrium exists.