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 ?
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.
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.
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.
A sampling of terms defined includes: active premium, aggregation, angel financing, asset allocation, backwardation, benchmark, bridge loan, capital structure arbitrage, coefficient of determination, commodity option, convertible arbitrage, deferred futures, discretionary trading, distressed debt, enumerated agricultural commodities, extrinsic value, follow-on funding, hedge ratio, interdelivery spread, long short equity, modified value-at-risk, offshore fund, piggyback registration, social entrepreneurship, systematic trading, tracking error, underlying futures contract, venture capital method, and weather premium.
Convertible arbitrage, emerging markets, event driven, distressed, event-driven multistrategy, risk arbitrage, fixed-income arbitrage, and multistrategy funds all have skewness coefficients less than zero, in some cases substantially so.
strategies experienced unusual difficulty: convertible arbitrage and
According to Ener1, Gassenheimer most recently served with hedge fund Satellite Asset Management, where he acted as managing director and portfolio manager of the fund's Convertible Arbitrage Division and Private Investment Group.
That means taking long and short positions on stocks and bonds and diversifying into mortgage-backed securities, distressed securities, convertible arbitrage and other financial instruments.