Abstract
Although the first contingent convertibles (CoCo) have already been issued in 2009, the pricing of such securities has not attracted much attention from the academic community so far. Combining various aspects from existing theoretical and practical literature, this paper presents a CoCo pricing methodology, which allows the valuation of equity or TIER-1 ratio triggered CoCos in a comprehensible way. The model is based upon the assumption that the issuer’s total asset value follows a Brownian motion, book values reflecting fair economic values in the case of financial distress and the existence of a linear relationship between straight equity and TIER-1 ratios. The pricing methodology then is applied to the Credit Suisse BCN issued in February 2011, which depicts that the pricing of CoCos in practice is afflicted with a degree of uncertainty that is not to be underestimated.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
