Pricing of CoCo Bonds with Unexpected Write-Down Risk

Contingent Convertibles (CoCo) are contingent capital instruments which convert into shares, or have a principal write down, if a trigger event takes place. In this paper we analyse "unexpected Write-Down risk". It is a risk... [ view full abstract ]

Contingent Convertibles (CoCo) are contingent capital instruments which convert into shares, or have a principal write down, if a trigger event takes place. In this paper we analyse "unexpected Write-Down risk". It is a risk in faced by CoCos, when CoCo with no write-down contract specification are subject to it during the lifetime of the note, mainly due to the intervention of market regulators. We provide pricing formulas for CoCos considering this new type of risk.