Convertible Bond Arbitrage and the Term Structure of Volatility

2020 ◽  
Author(s):  
Peter Zeitsch ◽  
Matthew Hyatt ◽  
Tom Davis ◽  
Xi Liu
Keyword(s):  
Term Structure ◽  
Convertible Bond

COCO BONDS PRICING WITH CREDIT AND EQUITY CALIBRATED FIRST-PASSAGE FIRM VALUE MODELS

2015 ◽  
Vol 18 (03) ◽  
pp. 1550015 ◽  
Author(s):  
DAMIANO BRIGO ◽  
JOÃO GARCIA ◽  
NICOLA PEDE
Keyword(s):  
Term Structure ◽  
Firm Value ◽  
Stress Test ◽  
Corporate Bonds ◽  
Convertible Bond ◽  
Model Parameters ◽  
Barrier Option ◽  
Equity Value ◽  
Credit Term ◽  
Credit Default

Since the beginning of the credit and liquidity crisis, financial institutions have been considering creating a convertible-bond type contract focusing on capital. Under the terms of this contract, a bond is converted into equity if the authorities deem the institution to be under-capitalized. This paper discusses this contingent capital (CoCo) bond instrument and presents a pricing methodology based on firm value models that calibrate exactly the credit term structure of the issuer either through credit default swaps or corporate bonds data. Decorrelation between the capital conversion trigger and credit quality is introduced. The equity value for the issuer is derived in closed form with a barrier option type formula. A stress test of model parameters is illustrated to account for potential model risk and the obtained prices are compared to the price obtained from a market source. Finally, a brief overview of how the instrument valuation performs compared to pure corporate bonds and a discussion involving the CDS bond basis are presented.

The Term Structure of Equity Risk: An Empirical Analysis

CFA Digest ◽  
1997 ◽  
Vol 27 (1) ◽  
pp. 56-57
Author(s):  
H. Kent Baker
Keyword(s):  
Empirical Analysis ◽  
Term Structure ◽  
Equity Risk

Calibration and implementation of convertible bond models

2003 ◽  
Vol 7 (2) ◽  
pp. 1-34 ◽  
Author(s):  
Leif Andersen ◽  
Dan Buffum
Keyword(s):  
Convertible Bond

The signalling properties of the shape of the credit default swap term structure

2015 ◽  
Vol 17 (4) ◽  
pp. 71-99 ◽  
Author(s):  
Jenny Castellanos ◽  
Nick Constantinou ◽  
Wing Lon Ng
Keyword(s):  
Term Structure ◽  
Credit Default Swap ◽  
Credit Default ◽  
Default Swap
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