- 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. Bloomberg Financial DictionaryIn 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. Bloomberg Financial Dictionary
* * *Buying convertible bonds and selling short the shares into which they can be converted.
Financial and business terms. 2012.
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