CoCos under short-term uncertainty

Jos\'e Manuel Corcuera and Arturo Valdivia

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Abstract: In this paper we analyze an extension of the Jeanblanc and Valchev (2005) model by considering a short-term uncertainty model with two noises. It is a combination of the ideas of Duffie and Lando (2001) and Jeanblanc and Valchev (2005): share quotations of the firm are available at the financial market, and these can be seen as noisy information about the fundamental value, or the firm's asset, from which a low level produces the credit event. We assume there are also reports of the firm, release times, where this short-term uncertainty disappears. This credit event model is used to describe conversion and default in a CoCo bond.

Date: 2016-01
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1602.00094

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