Investment advisors, pension plan managers and fund managers are always looking to increase return and decrease risk. Convertible arbitrage allows them to do just that which is why this strategy is growing rapidly . A convertible bond is a bond that may be exchanged at the holder’s discretion for a specified number of shares of common stock under terms defined by the issuing corporation at the time of the security’s issuance. It is a unique type of investment: As a bond, it pays interest and guarantees the return of principal upon maturity, but it also participates in the movement of the underlying stock because it can be converted to stock at any time. Because it combines the cushioning of a bond with equity participation, it provides special opportunities to manage risk while also offering the possibility of stock-like performance. Convertible arbitrage is a strategy that generally involves the purchase of convertible securities and the subsequent shorting of the corresponding stock. This strategy benefits from market volatility, regardless of whether the trend is up or down. Such a strategy can be attractive in diversifying an investor’s portfolio because it tends to correlate only minimally to the major asset classes.
Book Details:
- Author: Nick P. Calamos
- ISBN: 9780470318201
- Year Published: 2003
- Pages: 304
- BISAC: BUS036000, BUSINESS & ECONOMICS/Investments & Securities / General
About the Book and Topic:
Investment advisors, pension plan managers and fund managers are always looking to increase return and decrease risk. Convertible arbitrage allows them to do just that which is why this strategy is growing rapidly . A convertible bond is a bond that may be exchanged at the holder’s discretion for a specified number of shares of common stock under terms defined by the issuing corporation at the time of the security’s issuance. It is a unique type of investment: As a bond, it pays interest and guarantees the return of principal upon maturity, but it also participates in the movement of the underlying stock because it can be converted to stock at any time. Because it combines the cushioning of a bond with equity participation, it provides special opportunities to manage risk while also offering the possibility of stock-like performance. Convertible arbitrage is a strategy that generally involves the purchase of convertible securities and the subsequent shorting of the corresponding stock. This strategy benefits from market volatility, regardless of whether the trend is up or down. Such a strategy can be attractive in diversifying an investor’s portfolio because it tends to correlate only minimally to the major asset classes.
Growing demand for hedge funds, broadly speaking, and more specifically, for convertible arbitrage means that more investment professionals than ever before want to understand convertible arbitrage. Some of these individuals currently manage this strategy (or are considering the possibility), and others are financial consultants who advise institutional and individual clients on the role of hedge funds in their investment portfolio. This book is a thorough explanation of convertible arbitrage. It begins with an explanation of how convertible bonds work, and outlines the basic building tools of convertible hedging, function, including models for convertible analysis. Next it discusses “the Greeks,” that is, statistical quantifications of convertible. It goes on to treat the full range of hedges, including titled and leveraged hedges, as well as swaps, nontraditional hedges and option hedging. It also explains alternative convertible structures, the use of foreign convertibles in hedging, risk management at the portfolio level, and trading and hedge risks. This work will clearly differentiate the convertible arbitrage strategy from other hedging techniques such as long-short equity, merger and acquisition arbitrage, and fixed-income arbitrage.
* Explains how convertible bonds, the basic building tool ofconvertible hedging, function, including models for convertible analysis. * Discusses “the Greeks,” that is, statistical quantifications of convertible functions. * Contains the full range of hedges, including titled and leveraged hedges, as well as swaps, nontraditional hedges, and option hedging. * Explores alternative convertible structures, the use of foreign convertibles in hedging, risk management at the portfolio level, and trading and hedge risks.
About the Author
NICK P. CALAMOS is the Head of Investments and Chief Investment Officer overseeing research and portfolio management for Calamos Asset Management, Inc., one of the largest and most well-known convertible investment firms in the country. He oversees the #1 Convertible Fund and the #1 Growth Fund as rated by Lipper and Morningstar for the ten-year period ended 12/31/02. With the firm since 1983, Mr. Calamos has been instrumental in developing the Calamos Convertible Research System (CCRS), a sophisticated, proprietary research system that monitors and scans the entire market for the best available investment opportunities. A Chartered Financial Analyst (CFA), Mr. Calamos is a member of the Investment Analysts Society of Chicago. He has spoken at various conferences and seminars throughout the country on convertible securities investing, has been quoted as an authority on convertible securities by leading financial publications such as Barron’s, Fortune, The Wall Street Journal, USA Today, and the New York Times, and has appeared on CNBC and Bloomberg television. He received his undergraduate degree in economics from Southern Illinois University and an MS in finance from Northern Illinois University.