Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/287474 
Year of Publication: 
2021
Citation: 
[Journal:] Review of Derivatives Research [ISSN:] 1573-7144 [Volume:] 24 [Issue:] 3 [Publisher:] Springer US [Place:] New York, NY [Year:] 2021 [Pages:] 261-284
Publisher: 
Springer US, New York, NY
Abstract: 
In this study, we analyze whether model complexity improves accuracy of CoCo pricing models. We compare the out-of-sample pricing ability of four models using a broad dataset that contains all CoCos which were issued between January 1, 2013 and May 31, 2016 in euros. The regarded models include the standard model from De Spiegeleer and Schoutens (J Deriv 20:27–36, 2012), a modified version enriched by credit risk, an extended model that accounts for the effective lifetime of the CoCo, and a trading model, solely based on historic market prices but no pricing theory at all. For a normal market environment, the simple trading model provides a higher pricing accuracy than the theory-based models. Under distress, however, a theory-based model with a sufficiently high complexity is required.
Subjects: 
Contingent convertible bond
CoCo bond
CoCo pricing
Continuous-time derivatives pricing
Model complexity
Test of pricing models
JEL: 
G12
G13
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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