Convertible Arbitrage: Insights and Techniques for Successful Hedging 
asked by vicky123 on November 16, 2006 2:03 PM
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, "the Greeks," 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.
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, "the Greeks," 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.
Reviews
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i studied from this book for the CAIA exam. while it presented some very fascinating approaches and ideas for me, keeping in mind i am not a practising arbitrageur yet, it was very poorly edited and written in general.
every book starts with an assumption about the level of sophistication the reader. this book seems to assume different levels in different chapters and even paragraphs. the chapter on equity valuation is written for kids (lose the chapter, nick) and the ones on hedging techniques doesn't even bother to list assumptions behind complex positions.
the author uses the most confusing notations. e.g. Nu-1, literally typed out like that, which is supposed to represent a variable with subscript u-1. geez - whatever happened to computer typesettng with actual subscripts, and why use the same notation for different variables in different formulae? at least he could have used Nu-1 and Mu-1. I spent a lot of time making sense out of this one and assumed he was referring to Nu minus 1!
basically, if the same ideas were carefully thought out and presented by better editing and writing (and typesetting!), this would be an enjoyable book. as it stands, its a torture to go through. such wonderful ideas and such poor presentation. this one went out the door too early.
every book starts with an assumption about the level of sophistication the reader. this book seems to assume different levels in different chapters and even paragraphs. the chapter on equity valuation is written for kids (lose the chapter, nick) and the ones on hedging techniques doesn't even bother to list assumptions behind complex positions.
the author uses the most confusing notations. e.g. Nu-1, literally typed out like that, which is supposed to represent a variable with subscript u-1. geez - whatever happened to computer typesettng with actual subscripts, and why use the same notation for different variables in different formulae? at least he could have used Nu-1 and Mu-1. I spent a lot of time making sense out of this one and assumed he was referring to Nu minus 1!
basically, if the same ideas were carefully thought out and presented by better editing and writing (and typesetting!), this would be an enjoyable book. as it stands, its a torture to go through. such wonderful ideas and such poor presentation. this one went out the door too early.
reviewed by avi on November 26, 2006 8:45 PM
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As a technologist charged with implementing a convertible arbitrage fund, this book was incredibly helpful. By reading it, I learned enough about the strategy and how it works to have intelligent conversations with portfolio managers and analysts and understand what needs to be done to make it work. The book covers the Greeks and why they matter, and gives explanations of the strategies that are easily understood, but whose details are laid out in sufficient depth that the layperson might not be able absorb them all the first time through.
The books doesn't, and really can't, get into issues relating to data providers, prime brokers, and other execution-related topics. Yet it does cover almost every permutation of the strategy that you might find currently being implemented by a CA fund.
Overall, I think that this book provides an excellent grounding in the strategy, is a very engaging read, and will be a good reference as your understanding of the subject grows.
In closing, let me say this: The chapter on the Greeks alone justifies the purchase of this book. I have received questions from people wanting to know how I gained such depth of understanding in convertible/capital structure arbitrage so quickly, and I do not hesitate to hand them this book. (Well, maybe there is some hesitation.)
The books doesn't, and really can't, get into issues relating to data providers, prime brokers, and other execution-related topics. Yet it does cover almost every permutation of the strategy that you might find currently being implemented by a CA fund.
Overall, I think that this book provides an excellent grounding in the strategy, is a very engaging read, and will be a good reference as your understanding of the subject grows.
In closing, let me say this: The chapter on the Greeks alone justifies the purchase of this book. I have received questions from people wanting to know how I gained such depth of understanding in convertible/capital structure arbitrage so quickly, and I do not hesitate to hand them this book. (Well, maybe there is some hesitation.)
reviewed by pits on November 28, 2006 8:42 PM
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I have not read this book,but if you are really serious about arbitrage you should be able to write a program, that simulates the Black-Sholes model using discrete mathematics and random walk.
In short, you should be able to, from first principles, derive all you need to know about arbitrage.
But for those of you that prefer canned solutions, this book is OK I suppose.
In short, you should be able to, from first principles, derive all you need to know about arbitrage.
But for those of you that prefer canned solutions, this book is OK I suppose.
reviewed by speed5599 on November 28, 2006 10:21 PM