EconPapers    
Economics at your fingertips  
 

Pricing sovereign contingent convertible debt

Andrea Consiglio (), Michele Tumminello and Stavros Zenios ()

Papers from arXiv.org

Abstract: We develop a pricing model for Sovereign Contingent Convertible bonds (S-CoCo) with payment standstills triggered by a sovereign's Credit Default Swap (CDS) spread. We model CDS spread regime switching, which is prevalent during crises, as a hidden Markov process, coupled with a mean-reverting stochastic process of spread levels under fixed regimes, in order to obtain S-CoCo prices through simulation. The paper uses the pricing model in a Longstaff-Schwartz American option pricing framework to compute future state contingent S-CoCo prices for risk management. Dual trigger pricing is also discussed using the idiosyncratic CDS spread for the sovereign debt together with a broad market index. Numerical results are reported using S-CoCo designs for Greece, Italy and Germany with both the pricing and contingent pricing models.

New Economics Papers: this item is included in nep-eec
Date: 2018-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
http://arxiv.org/pdf/1804.01475 Latest version (application/pdf)

Related works:
Journal Article: PRICING SOVEREIGN CONTINGENT CONVERTIBLE DEBT (2018) Downloads
Journal Article: PRICING SOVEREIGN CONTINGENT CONVERTIBLE DEBT (2018) Downloads
Working Paper: Pricing Sovereign Contingent Convertible Debt (2016) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1804.01475

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().

 
Page updated 2019-08-25
Handle: RePEc:arx:papers:1804.01475