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Pricing Contingent Convertibles using an EquityDerivatives Jump Diusion Approach
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics. (Matematisk statistik)
2012 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

This paper familiarizes the reader with contingent convertibles and their role in the current financial landscape. A contingent convertible is a security behaving like a bond in normal times, but that converts into equity or is written down in times of turbulence. The paper presents a few existing pricing approaches and introduces an extension to one of these, the equity derivatives approach, by letting the underlying asset follow a jump-diffusion process instead of a standard Geometrical Brownian Motion. The extension requires sophisticated computational techniques in order for the pricing to stay within reasonable time frames. Since market data is sparse and incomplete in this area, the validation of the model is not performed quantitatively, but instead supported by qualitative arguments.

Place, publisher, year, edition, pages
2012. , 54 p.
Trita-MAT. MS, 2012:2
Keyword [en]
Contingent Convertible, CoCo, jump-diusion, pricing, adaptive mesh model
National Category
Probability Theory and Statistics
URN: urn:nbn:se:kth:diva-105549OAI: diva2:571418
Subject / course
Mathematical Statistics
Educational program
Master of Science in Engineering - Industrial Engineering and Management
Physics, Chemistry, Mathematics
Available from: 2012-11-22 Created: 2012-11-22 Last updated: 2012-11-22Bibliographically approved

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