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 ?
In particular, Ironwood expects that many holders of the existing convertible notes employ a convertible arbitrage strategy with respect to the existing convertible notes and have a short position with respect to Ironwood common stock that they would close, through purchases of Ironwood common stock, in connection with Ironwood's repurchase of their existing convertible notes.
In particular, FireEye expects that many of the holders with whom we negotiate the repurchase of the 1.000% Notes employ a convertible arbitrage strategy with respect to the 1.000% Notes and have a short position with respect to FireEyes common stock that they would close, through the entry into and/or unwinding of various derivative transactions with respect to shares of FireEyes common stock and/or purchases of FireEyes common stock or other securities of FireEye (including the notes, in which case such a holder that employs a convertible arbitrage strategy may additionally sell shares of FireEyes common stock in connection with such transactions), in connection with FireEyes repurchase of their 1.000% Notes.
Relative Value (credit, convertible arbitrage and volatility funds)
Convertible Arbitrage -0.73 percent 0.94 percent 1.60 percent
QES plans to team with fund companies to offer its mezzanine debt, long-short equity and convertible arbitrage strategies in 2014.
The HFRI RV: Fixed Income - Asset Backed and Convertible Arbitrage Indices posted gains of +0.15 and +0.22 per cent, respectively, for the month, while Volatility funds fell -0.20 per cent.
Besides an array of traditional investments, Elite Access offers 12 alternative options, from listed private equity to convertible arbitrage to emerging markets debt.
Conversely, firms opt for a longer call protection length in periods with larger demand from convertible arbitrage hedge funds.
Jon's clientele range from start-ups to multi-billion dollar entities with a variety of trading strategies, including long/short equities, convertible arbitrage, fixed income, derivatives, distressed debt and private equities.
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.
Apparently, hedge funds have pulled back from convertible arbitrage and the converts market has generally returned to normalcy.