CoCo Bonds Valuation with Equity- and Credit-Calibrated First Passage Structural Models

Damiano Brigo, Jo\~ao Garcia and Nicola Pede

Papers from arXiv.org

Abstract: After the beginning of the credit and liquidity crisis, financial institutions have been considering creating a convertible-bond type contract focusing on Capital. Under the terms of this contract, a bond is converted into equity if the authorities deem the institution to be under-capitalized. This paper discusses this Contingent Capital (or Coco) bond instrument and presents a pricing methodology based on firm value models. The model is calibrated to readily available market data. A stress test of model parameters is illustrated to account for potential model risk. Finally, a brief overview of how the instrument performs is presented.

Date: 2013-02
New Economics Papers: this item is included in nep-ban and nep-fmk
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1302.6629

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