Minimize risk and maximize profits with convertible arbitrage Convertible arbitrage involves purchasing a portfolio of convertible securities-generally convertible bonds-and hedging a portion of the equity risk by selling short the underlying common stock. This increasingly popular strategy, which is especially useful during times of market volatility, allows individuals to increase their returns while decreasing their risks. Convertible Arbitrage offers a thorough explanation of this unique investment strategy. Filled with in-depth insights from an expert in the field, this comprehensive guide explores a wide range of convertible topics. Readers will be introduced to a variety of models for convertible analysis, "the Greeks," as well as the full range of hedges, including titled and leveraged hedges, as well as swaps, nontraditional hedges, and option hedging. They will also gain a firm understanding of alternative convertible structures, the use of foreign convertibles in hedging, risk management at the portfolio level, and trading and hedging risks. Convertible Arbitrage eliminates any confusion by clearly differentiating convertible arbitrage strategy from other hedging techniques such as long-short equity, merger and acquisition arbitrage, and fixed-income arbitrage. Nick Calamos (Naperville, IL) oversees research and portfolio management for Calamos Asset Management, Inc. Since 1983 his experience has centered on convertible securities investment. He received his undergraduate degree in economics from Southern Illinois University and an MS in finance from Northern Illinois University.

"Convertible Arbitrage" ist ein praxisorientierter und umfassender Ratgeber, der sich mit einer interessanten Investmentstrategie auseinandersetzt - der 'Convertible Arbitrage'. Bei dieser Strategie geht es darum, ein Portfolio aus wandelbaren Wertpapieren anzulegen - in der Regel Wandelanleihen -, wobei das Risiko teilweise dadurch abgesichert wird, dass die zugrundeliegende Stammaktie leerverkauft wird. Diese Strategie erfreut sich wachsender Beliebtheit und ist insbesondere in Zeiten hoher Marktvolatilität von Nutzen, denn sie ermöglicht Finanzexperten eine Steigerung der Rendite bei einer Verringerung des Risikos. "Convertible Arbitrage" erläutert diese einzigartige Investmentstrategie fundiert und detailliert. Mit einer Fülle von Experten-Informationen. Autor Nick Calamos ist ein anerkannter Fachmann auf diesem Gebiet. Er ist regelmäßig auf CNBC zu sehen und wird häufig von Fachzeitschriften interviewt.

Sebastian Werner examines aggregate short sales and convertible bond arbitrage, which is a typical hedge fund strategy that involves a significant short position in the underlying stock of a long convertible bond position for hedging purposes. He provides insightful and new observations of the significant difference in the trading pattern, information content and resulting impact on stock returns of arbitrage- versus valuation-based short selling activities.

In this paper, we identify and document the empirical characteristics of the key drivers of convertible arbitrage as a strategy and how they impact the performance of convertible arbitrage hedge funds. We show that the returns of a buy-and-hedge strategy involving taking a long position in convertible bonds (ldquo;CBsrdquo;) while hedging the equity risk alone explains a substantial amount of these funds' return dynamics. In addition, we highlight the importance of non-price variables such as extreme market-wide events and the supply of CBs on performance. Out-of-sample tests provide corroborative evidence on our model's predictions. At a more micro level, larger funds appear to be less dependent on directional exposure to CBs and more active in shorting stocks to hedge their exposure than smaller funds. They are also more vulnerable to supply shocks in the CB market. These findings are consistent with economies of scale that large funds enjoy in accessing the stock loan market. However, the friction involved in adjusting the stock of risk capital managed by a large fund can negatively impact performance when the supply of CBs declines. Taken together, our findings are consistent with convertible arbitrageurs collectively being rewarded for playing an intermediation role of funding CB issuers whilst distributing part of the equity risk of CBs to the equity market.

What is Arbitrage In the fields of economics and finance, arbitrage refers to the technique of taking advantage of a discrepancy in pricing in two or more markets by striking a combination of matching agreements in order to capitalize on the difference. The profit results from the difference between the market prices at which the unit is traded. A transaction is considered to be an arbitrage when it is employed by academics. An arbitrage is a transaction that does not include a negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state. To put it another way, it is the potential of a risk-free profit after consideration of transaction costs. When there is the prospect of quickly purchasing something at a low price and then selling it at a higher price, for instance, this is an example of an arbitrage opportunity. How you will benefit (I) Insights, and validations about the following topics: Chapter 1: Arbitrage Chapter 2: Derivative (finance) Chapter 3: Long-Term Capital Management Chapter 4: Bond (finance) Chapter 5: Futures contract Chapter 6: Equity derivative Chapter 7: Hedge (finance) Chapter 8: Convertible bond Chapter 9: Fixed income Chapter 10: Rational pricing Chapter 11: Convertible security Chapter 12: Corporate bond Chapter 13: Risk arbitrage Chapter 14: Convertible arbitrage Chapter 15: Fixed income arbitrage Chapter 16: Dual-listed company Chapter 17: Limits to arbitrage Chapter 18: Big Mac Index Chapter 19: Reverse convertible securities Chapter 20: Replicating portfolio Chapter 21: Convergence trade (II) Answering the public top questions about arbitrage. (III) Real world examples for the usage of arbitrage in many fields. Who this book is for Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information for any kind of Arbitrage.

This paper analyzes convertible arbitrage, one of the most successful hedge fund strategies. The aim of the strategy is to exploit underpricing of convertible bonds by taking a long position in a convertible and a short position in the underlying asset. We find that convertible bonds are underpriced at the issuance dates. At the same time, short sales of underlying equity significantly increase. Both effects are stronger and more persistent for equity-like than for debt-like convertibles. Furthermore, we find that short sales pressures negatively affect stock returns around announcement and issuance dates of convertibles. In our opinion, this contributed to the shift towards issuing more debt-like convertibles in recent years, which in turn substantially lowered the returns from convertible arbitrage.

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