Journal of Korean Institute of Industrial Engineers (대한산업공학회지)

Korean Institute of Industrial Engineers (대한산업공학회)
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Pricing Model for Contingent Convertible Bond Using Stochastic Process of Equity Ratio

자본비율의 확률과정을 통한 조건부자본증권 가격결정론

  • Pyo, Sujin (Department of Industrial Engineering, Seoul National University) ;
  • Kim, Taegu (Department of Industrial and Management Engineering, Hanbat National University)
  • 표수진 (서울대학교 공과대학 산업공학과) ;
  • 김태구 (한밭대학교 공과대학 산업경영공학과)
  • Received : 2016.06.29
  • Accepted : 2016.12.29
  • Published : 2017.02.15
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Abstract

Contingent convertible (Coco) bonds have been issued in 2009 after financial crisis for improvement of capital structure in international banks. With more focuses on coco bonds in financial market, academic fields have paid attention to the instrument for optimal structure for issuers and rational pricing methodologies. However, there is a crucial discrepancy in prevailing pricing model and their target subjects. Though most of the coco bonds have been issued based on accounting triggers, many of existing models are based on market prices and therefore exhibit limitations in practical use. In this paper, a more practical pricing method for accounting triggered coco bonds is proposed using stochastic equity ratio process. Empirical results tested on coco bond issued by JB financial group supported the proposed approach with favorable performance in tracking actual market prices.

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References

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