The price determinants of contingent convertible bonds

Peter J. Zeitsch and Tom P. Davis

Finance Research Letters, 2021, vol. 43, issue C

Abstract: The relationships between contingent convertible (CoCo) bonds and their underlying equities, credit default swap spreads (CDS), interest rates, implied volatilities and foreign exchange rates are studied. Starting with the dynamic correlation of the DCC-GARCH method, it is found that CoCo bonds are most highly correlated to CDS. By constructing the minimum spanning tree of the resulting correlations, the primary link to CDS is confirmed. Implied volatility is found to be a secondary to tertiary link, alternating in importance with equities. Interest rates and FX have little impact.

Keywords: Contingent convertible bond; DCC-GARCH; Minimum spanning tree; Closeness Centrality (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:43:y:2021:i:c:s1544612321000969

DOI: 10.1016/j.frl.2021.102015

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