Convertible Arbitrage: Insights and Techniques for Successful Hedging

In Convertible Arbitrage: Insights and Techniques for Successful Hedging, Nick P. Calamos identifies the theories and practices in managing a convertible arbitrage strategy, explaining how they help boost returns while potentially decreasing risk - no matter what the market is doing.

The practice of convertible arbitrage takes advantage of the unique hybrid nature of convertible securities, which combine both fixed-income and equity characteristics. It typically involves matching a long position in convertible securities - usually convertible bonds - with a short position of corresponding stock. The bond has the potential to pay interest and repay principal upon maturity barring default - but also provides the potential to participate in the upside movement of the underlying stock because a convertible bond's option component makes it readily convertible into stock. Convertible arbitrage thus allows investors to create positions that have the potential to achieve either market-neutral returns or that have a bias towards a security's future price, offering tools to both the defensive and aggressive investor.

In good markets and bad, convertible arbitrage may give investors an alternative to traditional investing. This is partly why convertible arbitrage - following the larger trend of hedge funds - has moved to center stage in the last decade. The array of convertible securities available - and the ever-shifting financial engineering behind them - demands a practical working knowledge of convertible arbitrage hedging techniques. The book provides a comprehensive review of these techniques designed to help sophisticated investors more fully understand new twists in convertible terms, types of securities, or derivative hedge products.