We develop a theoretical model to assess the merits of principal-write down contingent convertible (CoCo) bonds. The conversion risk is the key feature of CoCo bonds. Because of this conversion risk, CoCo bonds are hard to price and an equilibrium price does not necessarily exist. In our model,...

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...

Contingent Convertible Bonds, or CoCos, are contingent capital instruments which are converted into shares, or may suffer a principal write-down, if certain trigger event occurs. In this paper we discuss some approaches to the problem of pricing CoCos when its conversion and the other relevant...

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...

Contingent Convertible bonds (CoCos) are debt instruments that convert into equity or are written down in times of distress. Existing pricing models assume conversion triggers based on market prices and on the assumption that markets can always observe all relevant firm information. But all...

In this paper we obtain some formulas for pricing contingent convertibles subject to what we call extension risk, i.e., the possibility that bond issuer does not buy back the bond at pre specified call dates and then new coupons rate are established until bond maturity. We follow a structural...

This article uses a contingent-claims method to investigate how the provision of antidilution clause combined with the issuance of convertible preferred stock affect the entrepreneur's incentive to exert efforts to improve the prospects of the operation of an investment project. For plausible...

We develop a model to examine the timing of investment decisions in relation to the issuance of convertible debt by firms. Our model shows that when the demand shock has higher volatility, the firm finances the investment cost with high-coupon convertible debt. We find that default occurs...

With several banks issuing substantial amounts of contingent convertible (“coco”) bonds since 2009 this paper is the first to analyse empirically the suitability of selected pricing models that have been proposed for this kind of instrument. The analysis of coco bond issues by major banks...