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CoCos with Extension Risk: A Structural Approach

17 Pages Posted: 20 Dec 2014  

José Manuel Corcuera

University of Barcelona

José Fajardo

Getulio Vargas Foundation

Wim Schoutens

KU Leuven - Department of Mathematics

Arturo Valdivia

University of Barcelona

Date Written: December 19, 2014

Abstract

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 approach and we address the finite and infinite maturity cases.

Keywords: Contingent convertibles, extension rsk, call date

JEL Classification: G11, G12, G13, G18, G21, G32

Suggested Citation

Corcuera, José Manuel and Fajardo, José and Schoutens, Wim and Valdivia, Arturo, CoCos with Extension Risk: A Structural Approach (December 19, 2014). Available at SSRN: https://ssrn.com/abstract=2540625 or http://dx.doi.org/10.2139/ssrn.2540625

José Manuel Corcuera (Contact Author)

University of Barcelona ( email )

Gran Via de les Corts Catalanes, 585
Barcelona, 08007
Spain

José Fajardo

Getulio Vargas Foundation ( email )

Brazil
55213799 5781 (Phone)

HOME PAGE: http://www.josefajardo.com

Wim Schoutens

KU Leuven - Department of Mathematics ( email )

Celestijnenlaan 200 B
Leuven, B-3001
Belgium

Arturo Valdivia

University of Barcelona ( email )

585 Gran Via de les Corts Catalanes
Barcelona, 08007
Spain

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