The Determinants of CoCo Bond Prices
Posted: 15 Oct 2018 Last revised: 8 Jan 2019
Date Written: October 15, 2018
This study aims to test empirically how contingent convertible (CoCo) bond prices are affected by the main theoretical determinants and design features. The theoretical framework used in this paper is the Equity Derivatives Model suggested by De Spiegeleer and Schoutens . We test for the relationship between CoCo prices and key variables suggested by this model. We find that the main determinants are mostly significant and that the explanatory power of the model is high with an R-squared of 86 percent. The power of the model is not affected by the loss absorption mechanism (conversion to equity or principal write-down). We also identify a number of additional explanatory variables of importance.
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