CoCos with Extension Risk: A Structural Approach
17 Pages Posted: 20 Dec 2014
Date Written: December 19, 2014
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
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