"Introducing a revolutionary new quantitative approach to hybrid securities valuation and risk managementTo an equity trader they are shares. For the trader at the fixed income desk, they are bonds (after all, they pay coupons, so what's the problem?). They are hybrid securities. Neither equity...

We look at the problem of pricing CoCo bonds where the underlying risky asset dynamics are given by a smile conform model, more precisely an exponential Lévy process incorporating jumps and heavy tails. A core mathematical quantity that is needed in closed form in order to produce an exact...

This article provides an in-depth analysis of pricing and structuring of contingent convertibles (CoCos). These debt instruments convert into the equity of the issuing bank or suffer a write-down of the face value upon the appearance of a trigger event. This trigger mechanism provides an...

This paper presents a Heston-based pricing model for contingent convertible bonds (CoCos). The main finding is that skew in the implied volatility surface has a significant impact on the CoCo price. Hence stochastic volatility models, like the Heston model, which incorporate smile and skew are...

This article provides an in-depth analysis of the pricing and structuring of contingent convertibles (CoCos) with extension risk. Under the new regulatory Basel III framework, CoCo bonds can be categorised as either belonging to the Additional Tier 1 or Tier 2 capital category. The Tier 1 CoCo...

In this work we introduce the notion of implied Core Equity Tier 1 volatility and the concept of a risk-adjusted distance to trigger. Using a derivatives-based valuation approach, we are able to derive the implied CET1 volatility from the market price of a CoCo bond in a Black-Scholes setting....