The financial crisis since 2007 has highlighted the
fragility of the banking system. To address this deficiency, the
Basel committee has agreed upon Basel III which consists of
reinforcing banks' capital through new regulatory requirements.
Raising additional funds by issuing common equity would lead to a
significant cost for banks. Facing the problem, regulators came up
with the concept of contingent capital. Contingent convertible
(Coco) bonds have been the topic as both a solution to the ``too
big to fail'' problem and a measure by which financial
institutions can save themselves. In this paper we first give the
introduction of Coco bonds, then present the design of Chinese
Coco bonds and pricing Coco bonds through an equity derivative
approach as well as sensitivity analysis based on B-S-M
hypothesis. Considering that the stock return follows fat-tail
distribution, this paper uses Heston stochastic volatility model
to price Coco bonds. Finally we give some proposals for
developing Coco bonds market in China.