convertible arbitrage


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 Dictionary
See: Chinese hedge and setup
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. Bloomberg Financial Dictionary

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   Buying convertible bonds and selling short the shares into which they can be converted.
   ► See also Arbitrage, Convertible Bond, Short.

Financial and business terms. 2012.