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The price determinants of contingent convertible bonds

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  • Zeitsch, Peter J.
  • Davis, Tom P.

Abstract

The relationships between contingent convertible (CoCo) bonds and their underlying equities, credit default swap spreads (CDS), interest rates, implied volatilities and foreign exchange rates are studied. Starting with the dynamic correlation of the DCC-GARCH method, it is found that CoCo bonds are most highly correlated to CDS. By constructing the minimum spanning tree of the resulting correlations, the primary link to CDS is confirmed. Implied volatility is found to be a secondary to tertiary link, alternating in importance with equities. Interest rates and FX have little impact.

Suggested Citation

  • Zeitsch, Peter J. & Davis, Tom P., 2021. "The price determinants of contingent convertible bonds," Finance Research Letters, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:finlet:v:43:y:2021:i:c:s1544612321000969
    DOI: 10.1016/j.frl.2021.102015
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    References listed on IDEAS

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    Cited by:

    1. Peter J. Zeitsch, 2024. "Convertible Bond Arbitrage Smart Beta," Computational Economics, Springer;Society for Computational Economics, vol. 63(1), pages 159-192, January.
    2. Liwei Jin & Xianghui Yuan & Li Peiran & Hailun Xu & Feng Lian, 2023. "Option features and price discovery in convertible bonds," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(3), pages 384-403, March.

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