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CoCos under short-term uncertainty

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  • Jos'e Manuel Corcuera
  • Arturo Valdivia

Abstract

In this paper we analyze an extension of the Jeanblanc and Valchev (2005) model by considering a short-term uncertainty model with two noises. It is a combination of the ideas of Duffie and Lando (2001) and Jeanblanc and Valchev (2005): share quotations of the firm are available at the financial market, and these can be seen as noisy information about the fundamental value, or the firm's asset, from which a low level produces the credit event. We assume there are also reports of the firm, release times, where this short-term uncertainty disappears. This credit event model is used to describe conversion and default in a CoCo bond.

Suggested Citation

  • Jos'e Manuel Corcuera & Arturo Valdivia, 2016. "CoCos under short-term uncertainty," Papers 1602.00094, arXiv.org.
    • Handle: RePEc:arx:papers:1602.00094
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    References listed on IDEAS

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    12. Corcuera, José Manuel & De Spiegeleer, Jan & Fajardo, José & Jönsson, Henrik & Schoutens, Wim & Valdivia, Arturo, 2014. "Close form pricing formulas for Coupon Cancellable CoCos," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 339-351.
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    Cited by:

    1. Javier Bianchi, 2016. "Efficient Bailouts?," American Economic Review, American Economic Association, vol. 106(12), pages 3607-3659, December.

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