The risk that CoCo investors are exposed to. This risk arises from both the issuer of the CoCo, and the contractual rights and the incentives for risk taking (risk premium) which are embedded in the  structure of a CoCo bond.

For investors, CoCo risk reflects the incentive problem created in the principal write-down (PWD) trigger: leading to a write down of CoCo bonds, as well as a yield premium for that embedded trigger. The yield premium is higher for financial institutions which are exposed to a larger conflict of interest. Investors demand a larger buffer towards the trigger threshold with a higher price.