Convertible Arbitrage


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Convertible Arbitrage

In the context of hedge funds, a style of management that involves the simultaneous purchase of a convertible bond and the short sale of shares of the underlying stock. Interest rate risk may or may not be hedged.

Convertible arbitrage

A practice, usually of buying a convertible bond and shorting a percentage of the equivalent underlying common shares, to create a positive cash flow position (with expected returns above the riskless rate) in a static environment and benefit from capital appreciation should the convertible's premium rise. This form of investing is far from riskless and requires constant monitoring. See: Chinese hedge and setup

Convertible Arbitrage

An investment strategy in which one buys a convertible bond and short sells the underlying common stock. The idea behind convertible arbitrage is to profit from inefficiency in the pricing of the convertible bond. However, convertible arbitrage is risky and requires monitoring because the pricing inefficiencies may only be temporary. It is a strategy associated with hedge funds. See also: Chinese hedge.
References in periodicals archive ?
Relative Value (credit, convertible arbitrage and volatility funds)
The HFRI RV: Fixed Income - Asset Backed and Convertible Arbitrage Indices posted gains of +0.
13%) with assets across various strategies, such as long/short equity, energy arbitrage, convertible arbitrage, and asset based convertible debt.
introduced Elite Access, a new investment vehicle providing access to alternative investment classes, including managed futures, commodities, listed private equity, global infrastructure, convertible arbitrage and emerging markets.
Before co-founding Second Moment, Butman was President and CEO of TQA Investors LLC, a hedge fund specializing in convertible arbitrage based in Stamford, Conn.
In his new role, Kilcullen will focus on developing the desk's trading with convertible arbitrage and special situation clients, and enhance Nomura's delivery of cross-asset trading solutions for customers.
In the years immediately preceding the meltdown, hedge funds invested billions of dollars in convertible arbitrage.
50% on a continuation of strong corporate credit markets, with top contributions from Convertible Arbitrage and Energy Infrastructure exposure.
Carduus is to focus on event-driven and relative-value strategies, including long/short credit, distressed debt and convertible arbitrage.
An Investcorp Interlachen Capital Group fund has received the Hedgeweek 2010 award for the best 'Multi-Strategy Fund', and an Investcorp Silverback Asset Management fund has been ranked number one in 'The Barclays Managed Funds Q1 Report' for the 'Top 10 Convertible Arbitrage Manager - Past Three Years'.
Convertible arbitrage was among 2008's worst-performing strategies, but it was 2009's second-best strategy.
In the hedge fund world, we've done each of the so-called arbitrage strategies: merger arbitrage, convertible arbitrage, closed-end arbitrage.