Convertible arbitrage

Forbes  Dec 6  Comment 
As an Absolute Advisers sub-adviser, Mohican’s strategy, which in the past was restricted to hedge fund investors, is available in a mutual fund. by Richard Wilson  Sep 20  Comment 
Convertible Arbitrage Strategy Convertible Arbitrage Strategy Hit Hardest in August Turmoil Many hedge funds are still reeling from last month's market turmoil.  Some strategies were typically hit harder than others during the volatility. ...
Hedge Fund Blogs From HedgeCo.Net  May 15  Comment 
Convertible Arbitrage*: Shifting Gears, a new 15 page white paper released by Credit Suisse/Tremont Hedge Fund Index, examines the reasons behind the Convertible Arbitrage meltdown in 2008 and the factors driving the strategy’s recent...
Financial Times  May 13  Comment 
The funds have bounced back from a miserable 2008 to be the star performers in an industry that in April enjoyed gains of 3.8 per cent, its best month for nine years


Convertible arbitrage: This is a strategy popular among hedge funds that operates by purchasing convertible securities, typically convertible bonds, and selling short the underlying common stock to hedge the equity risk of the convertible bond. The profit lies in seeking out convertible bonds that are mispriced relative to the common stock. Convertible arbitrage is especially profitable in times of high volatility for the common stock, as the convertible bond market is much more illiquid, giving rise to mispricings and other exploitable inefficiencies. Managers may choose to hedge some or all of the equity risk of a convertible bond. A convertible bond is a security issued by a company which may be converted from debt to equity, and vice-versa, during various points in the life cycle of the security. Managers may choose to hedge some or all of the equity risk of a convertible bond. Even if an arbitrageur hedges the entire equity portion, that does not remove all risk, but it does substantially reduce the risk of holding the bond. As a form of debt, the convertible bond is also fairly high in the order of payment, below the pure bondholders, but higher than the holders of common stock.

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