A comparative study of pricing models for contingent convertible bonds

Hor, Rui Xin (2021) A comparative study of pricing models for contingent convertible bonds. Masters thesis, Sunway University.

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The financial crisis in 2008 gave rise to the emergence of contingent convertible (CoCo) bonds as one of the non-trivial solutions for firm’s cash solvency and liquidity. CoCo bond is a long-term hybrid debt that pays fixed interval coupon payments during its life and offers rrecapitalizationto the firm during the time of financial non-viability. The CoCo bonds market expanded quickly throughout the year. As such, an optimal and effective pricing model for the investors and issuers to evaluate the value of CoCo bonds is certainly required. Various models were proposed for the valuation of CoCo bonds. However, it is still a question that which model is the best suited for the task. Therefore, the performance of several pricing models are compared to determine the optimal pricing model that can provide an accurate value for CoCo bonds. Sensitivity analysis is conducted to test the sensitivity of different models towards parameter changes. Based on the results, Leung and Kwok model is the best suited method to price CoCo bond under the Credit Suisse market setting. Besides, CoCo bond has not yet emerged in Malaysian bond market. Hence, the financial data of Maybank is parameterized and tested for suitability of CoCo bond issuance. After fitting the proposed parameters into all models, the CoCo bond price is computed and the result shows reasonable CoCo bond price.

Item Type: Thesis (Masters)
Uncontrolled Keywords: CoCo bond
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Divisions: Sunway University > School of Mathematical Sciences > Department of Actuarial Science and Risk
Depositing User: Ms Yong Yee Chan
Date Deposited: 27 Sep 2023 06:23
Last Modified: 27 Sep 2023 06:23
URI: http://eprints.sunway.edu.my/id/eprint/2393

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