| Title | Pricing contingent convertibles with idiosyncratic risk |
| Author | |
| Corresponding Author | Yang, Zhaojun |
| Publication Years | 2023-03-01
|
| DOI | |
| Source Title | |
| ISSN | 1742-7355
|
| EISSN | 1742-7363
|
| Abstract | We consider capital structure including equity, straight bonds (SBs), and contingent convertibles (CoCos) for nonfinancial firms. We price equity and CoCos by a utility-based method. We show that benefits from issuing CoCos increase dramatically with idiosyncratic risk and risk aversion. The firm value is concave in CoCos' conversion ratio and the optimal conversion ratio increases with risk aversion and idiosyncratic risk. If risk aversion is sufficiently high, shareholders' risk-shifting incentives disappear, and the firm issues less CoCos and equity and more SBs as idiosyncratic risk rises. The higher the idiosyncratic risk or risk aversion, the higher the leverage. |
| Keywords | |
| URL | [Source Record] |
| Indexed By | |
| Language | English
|
| SUSTech Authorship | Corresponding
|
| Funding Project | National Natural Science Foundation of China[72031003]
|
| WOS Research Area | Business & Economics
|
| WOS Subject | Economics
|
| WOS Accession No | WOS:000942792300001
|
| Publisher | |
| Data Source | Web of Science
|
| Citation statistics |
Cited Times [WOS]:0
|
| Document Type | Journal Article |
| Identifier | http://kc.sustech.edu.cn/handle/2SGJ60CL/513400 |
| Department | Department of Finance 理学院_数学系 |
| Affiliation | 1.Henan Univ, Sch Econ, Dept Finance, Kaifeng, Peoples R China 2.Southern Univ Sci & Technol, Dept Finance, Shenzhen 518055, Peoples R China 3.Southern Univ Sci & Technol, Dept Math, Shenzhen, Peoples R China |
| Corresponding Author Affilication | Department of Finance |
| Recommended Citation GB/T 7714 |
Wang, Xiaolin,Yang, Zhaojun,Zeng, Pingping. Pricing contingent convertibles with idiosyncratic risk[J]. International Journal of Economic Theory,2023.
|
| APA |
Wang, Xiaolin,Yang, Zhaojun,&Zeng, Pingping.(2023).Pricing contingent convertibles with idiosyncratic risk.International Journal of Economic Theory.
|
| MLA |
Wang, Xiaolin,et al."Pricing contingent convertibles with idiosyncratic risk".International Journal of Economic Theory (2023).
|
| Files in This Item: | There are no files associated with this item. | |||||
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