Pricing contingent convertible bonds: An analytical approach based on two-dimensional stochastic processes

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In this paper, we study fast pricing methods for contingent convertible bonds (CoCos). Based on two-dimensional stochastic processes, we propose two pricing models for CoCos: a dynamic capital-ratio model and a dynamic debt-equity model. Under these frameworks, we derive analytic-form formulae for CoCos with fixed and floored conversion prices. Many practical implications for analyzing CoCos are observed through numerical tests by choosing the plausible model parameters obtained from empirical results. (C) 2018 Elsevier B.V. All rights reserved.
Publisher
ELSEVIER SCIENCE BV
Issue Date
2019-05
Language
English
Article Type
Article
Citation

STATISTICS & PROBABILITY LETTERS, v.148, pp.43 - 53

ISSN
0167-7152
DOI
10.1016/j.spl.2018.12.009
URI
http://hdl.handle.net/10203/251981
Appears in Collection
MA-Journal Papers(저널논문)
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