We propose a model for price formation in financial markets based on clearing of a standard call auction with random orders, and verify its validity for prediction of the daily closing price distribution statistically. The model considers random buy and sell orders, placed following demand-and supply-side valuation distributions; an equilibrium equation then leads to a distribution for clearing price and transacted volume. Bid and ask volumes are left as free parameters, permitting possibly heavy-tailed or very skewed order flow conditions. In highly liquid auctions, the clearing price distribution converges to an asymptotically normal central limit, with mean and variance in terms of supply/demandvaluation distributions and order flow imbalance. By means of simulations, we illustrate the influence of variations in order flow and valuation distributions on price/volume, noting a distinction between high-and low-volume auction price variance. To verify the validity of the model statistically, we predict a year's worth of daily closing price distributions for 5 constituents of the Eurostoxx 50 index; Kolmogorov-Smirnov statistics and QQ-plots demonstrate with ample statistical significance that the model predicts closing price distributions accurately, and compares favourably with alternative methods of prediction.

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Contingent Convertible bonds (CoCos) are debt instruments that convert into equity or are written down in times of distress. Existing pricing models assume conversion triggers based on market prices and on the assumption that markets can always observe all relevant firm information. But all Cocos issued so far have triggers based on accounting ratios and/or regulatory intervention. We incorporate that markets receive information through noisy accounting reports issued at discrete time instants, which allows us to distinguish between market and accounting values, and between automatic triggers and regulator-mandated conversions. Our second contribution is to incorporate that coupon payments are contingent too: their payment is conditional on the Maximum Distributable Amount not being exceeded. We examine the impact of CoCo design parameters, asset volatility and accounting noise on the price of a CoCo; and investigate the interaction between CoCo design features, the capital structure of the issuing bank and their implications for risk taking and investment incentives. Finally, we use our model to explain the crash in CoCo prices after Deutsche Bank's profit warning in February 2016.JEL codes: G12, G13, G18, G21, G28, G32 AMS subject classification: 91B25, 91G40, 97M30

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On January 3, 2018 MiFID II regulations came into effect. This paper compares properties of European stocks for 2017 and 2018. The introduced tick size regime impacted the microstructure in accordance with existing literature on tick size changes. Remarkably, the modification of the microstructure also impacted volatility and transacted volume. Furthermore, it is shown that closing auction volumes increased heavily since MiFID II, leading to higher absolute returns in the auctions.Before MiFID II, high closing auction returns reverted overnight, but after MiFID II this reversion disappeared, showing that closing prices became more efficient.JEL Codes: G10, G14, G15, G18, D44.