Convertible Arbitrage

Minimize risk and maximize profits with convertible arbitrage Convertible arbitrage involves purchasing a portfolio of convertible securities-generally convertible bonds-and hedging a portion of the equity risk by selling short the underlying common stock. This increasingly popular strategy, which is especially useful during times of market volatility, allows individuals to increase their returns while decreasing their risks. Convertible Arbitrage offers a thorough explanation of this unique investment strategy. Filled with in-depth insights from an expert in the field, this comprehensive guide explores a wide range of convertible topics. Readers will be introduced to a variety of models for convertible analysis, "e;the Greeks,"e; as well as the full range of hedges, including titled and leveraged hedges, as well as swaps, nontraditional hedges, and option hedging. They will also gain a firm understanding of alternative convertible structures, the use of foreign convertibles in hedging, risk management at the portfolio level, and trading and hedging risks. Convertible Arbitrage eliminates any confusion by clearly differentiating convertible arbitrage strategy from other hedging techniques such as long-short equity, merger and acquisition arbitrage, and fixed-income arbitrage. Nick Calamos (Naperville, IL) oversees research and portfolio management for Calamos Asset Management, Inc. Since 1983 his experience has centered on convertible securities investment. He received his undergraduate degree in economics from Southern Illinois University and an MS in finance from Northern Illinois University.

Minimize risk and maximize profits with convertible arbitrageConvertible arbitrage involves purchasing a portfolio ofconvertible securities-generally convertible bonds-and hedging aportion of the equity risk by selling short the underlying commonstock. This increasingly popular strategy, which is especiallyuseful during times of market volatility, allows individuals toincrease their returns while decreasing their risks. ConvertibleArbitrage offers a thorough explanation of this unique investmentstrategy. Filled with in-depth insights from an expert in thefield, this comprehensive guide explores a wide range ofconvertible topics. Readers will be introduced to a variety ofmodels for convertible analysis, "the Greeks," as well as the fullrange of hedges, including titled and leveraged hedges, as well asswaps, nontraditional hedges, and option hedging. They will alsogain a firm understanding of alternative convertible structuresthe use of foreign convertibles in hedging, risk management at theportfolio level, and trading and hedging risks. ConvertibleArbitrage eliminates any confusion by clearly differentiatingconvertible arbitrage strategy from other hedging techniques suchas long-short equity, merger and acquisition arbitrage, andfixed-income arbitrage.Nick Calamos (Naperville, IL) oversees research and portfoliomanagement for Calamos Asset Management, Inc. Since 1983 hisexperience has centered on convertible securities investment. Hereceived his undergraduate degree in economics from SouthernIllinois University and an MS in finance from Northern IllinoisUniversity.

Chapter 1. Convertible Arbitrage: An Overview.Convertible Arbitrage--A Brief History.Why Hedge with Convertibles?Convertible Arbitrage Performance.What About Risks?Basics of Convertible Securities.Risk-Reward Analysis.Methods of Valuation.Convertible Profile Graph.Basics of Convertible Arbitrage.Multiple Convertible Structures.Appendix 1.1.Chapter 2. Valuation.Convertible Valuation Models.Binomial Option Model.Chapter 3. The Greeks.Measures of Risk.Delta (.).Gamma (Gamma).Vega (v).Theta (.).Rho (rho).More on Volatility.Chi (chi).Omicron (o).Upsilon ( upsilon).Phi ( phi).Mandatory Convertible Greeks.Chapter 4. Credit and Equity Considerations.Credit Evaluation.Credit Analysis and Equity Market Feedback.Asset Value Credit Evaluation.Cash Flow and Valuing a Business.Business Valuation Model.I. Cash Inflows: Capital Employed.II. Cash Outflows: Economic Profit.III. Cash-Inflow Model.IV. Intrinsic Business Value.Chapter 5. Convertible Arbitrage Techniques.Delta Neutral Hedge (Long Volatility).Delta Estimates versus Theoretical Deltas.Dynamic Rebalancing of the Delta Neutral Hedge.Delta Neutral Hedge on Leverage.Delta Hedge--Currency Hedge Overlay.Appendix 5.1.Appendix 5.2.Chapter 6. Gamma Hedging.Capturing the Gamma in a Convertible Hedge.Bearish Tilt Gamma Convertible Hedge.Bearish Gamma Hedge on Leverage.The Gamma Tilt Hedge's Role in a Market NeutralPortfolio.Chapter 7. Convertible Option Hedge Techniques.Covered or Partially Covered Convertible Call Option Hedge.Long Convertible Stock Hedge with Call Write Overlay.Synthetic Bond--Long Busted Convertible with CallWrite.and Long Out-of-the-Money Call for Protection.Convertible Stock Hedge--Put Purchase ProvidesAdditional.Downside Protection.Convertible Hedge Call Write with Protective Long Put.Mandatory Convertible Preferred--Stock Hedge with CallWrite Overlay.Chapter 8. Convertible Asset Swaps and Credit Default Swaps.Convertible Asset Swaps--Extracting Cheap Options fromInvestment-Grade Convertibles.The Mechanics of Convertible Asset Swapping.Swap Hedge Setup.Convertible Bond Credit Default Swap--Transfer Credit Riskin a Hedge.Appendix 8.1.Chapter 9. Non-traditional Hedges.The Reverse Hedge.Call Option Hedge: Monetization of a Cheap Embedded CallOption.Stock Hedge to Capture Cheap or Free Put Options.Convergence Hedges.Merger and Acquisition Risk Arbitrage Trades.Reset Convertibles (or Death Spiral Convertibles).Capital Structure Hedge.Distressed Convertible Hedge or Negative Gamma HedgeOpportunities.Basket Hedging Equity Delta.Synthetic Worksheet Hedge.Dividend Reduction Convertible Hedge.Trading Desk Value Added.Trade Execution.Appendix 9.1.Appendix 9.2.Take-Over Risks--An Example.Chapter 10. Portfolio Risk Management.Balance Sheet Leverage.Scenario Analysis.Hedging Systematic Risks with Index Options.Hedging Interest Rate Risk--Yield Curve Shifts.Hedging Volatility with Volatility Swaps.Hedging Omicron with Volatility Swaps.Hedging Omicron with Credit Default Swap Basket or Short ClosedEnd Funds.Rough Spots for Convertible Arbitrage.Managing the Convertible Arbitrage Manager.Glossary.Index.