CoCo Bonds Assessment

The aim of the present research is to provide a new CoCo bond pricing method to assist analyses of both equity investors and fixed income investors. For this reason, we develop models in terms of PDEs where the spatial variable is the underlying stock. By using these approaches, one will be able to calculate delta, gamma, and any kind of duration and convexity for CoCo bonds including the callability feature. We revise closed form solution of Spiegeleer and Schoutens (2011) such that to be applicable to all practical problems. Then, we use this approach as a benchmark in order to check our numerical methods. Two groups of approaches are developed. The first group is based on the primary market assumptions of Black-Scholes, and the second one involves credit risk modeling by means of jump to default stock dynamics