Convertible Arbitrage

<body stylesrc="../_private/template_title.htm" topmargin="10" leftmargin="10" bgcolor="#FFFFFF" link="#333366" vlink="#000000" alink="#000000"> <div align="left"> <table border="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" cellpadding="0" id="table2"> <tr> <td width="780"> <div align="center"> <table border="0" cellpadding="5" cellspacing="0" height="206" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table3"> <tr> <td align="right" height="198" width="1%"> <p align="left"> <img border="0" src="../images/book_calamos_n_(2003).jpg" width="132" height="200"></td> <td valign="top" align="left" height="198"> <table border="0" cellspacing="1" style="border-collapse: collapse" bordercolor="#111111" cellpadding="0" id="table4"> <tr> <td colspan="3" width="0%"> <p class="book_title">Convertible Arbitrage<br> <font size="3">Insights and Techniques for Successful Hedging</font></td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> <img border="0" src="../images/blank_2x2.gif" width="2" height="2"><img border="0" src="../images/blank_2x2.gif" width="2" height="2"></td> <td width="52%" class="book_details_tags" valign="top" height="144" align="left" rowspan="9"> <map name="FPMap2"> <area href="../main/ratings.htm" shape="rect" coords="74, 0, 164, 32"> </map> <img border="0" src="../images_title/calamo35.gif" usemap="#FPMap2" width="188" height="158"></td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" height="32" align="center" width="50%" rowspan="2"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> </tr> </table> </td> </tr> </table> </div> <div align="center"> <center> <table border="0" cellpadding="10" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="468" id="table5"> <tr> <td> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td></tr> </table> </center> </div> <table border="0" cellpadding="5" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table6"> <tr> <td width="50%" valign="top"> <p align="left" class="body_expanded"><strong style="font-weight: 400">Convertible arbitrage is a trading strategy employed by many hedge funds. At its heart, the strategy takes advantage of the fact that convertible bonds can be devilishly hard to value. In theory, a trader with the right tools can identify mis-pricings, put on some sort of long-short hedge, and realize a profit.</strong></p> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="125" align="left" id="table7"> <tr> <td width="120"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td><td width="5"> </td> </tr> </table> <p align="left" class="body_expanded"><strong style="font-weight: 400">Calamos has written a wonderful non-technical introduction to the discipline. He opens with a brief overview of convertible arbitrage and its history. He delves into the complex nature of convertibles, which blend aspects of fixed income, equity and options markets. There is brief information on financial engineering issues of valuation and an in-depth discussion of credit valuation issues. Calamos describes the fundamentally different dynamics of convertibles that are in-the-money, out-of-the-money, distressed, or "busted."  He introduces the standard Greek sensitivities—delta, gamma, vega, theta and rho—as well as some new ones that are more specific to convertibles—omicron, upsilon and phi. He also describes convertibles with various "whistles and bells"—including mandatory convertibles and reset convertibles (also called "death spiral" convertibles).</strong></p> </td> <td width="50%" valign="top" class="body" rowspan="2"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table8"> <tr> <td width="100%" bgcolor="#333366"> <p class="header_yellow" align="center">Contents</td> </tr> <tr> <td width="100%" class="explanatory_text"> <table border="1" cellpadding="0" cellspacing="5" style="border-collapse: collapse" bordercolor="#CCCCFF" bgcolor="#CCCCFF" width="100%" id="table9"> <tr> <td class="contents_expanded"> <p class="contents_compressed" style="margin-top: 3; margin-bottom: 3">1. Convertible Arbitrage: An Overview</p> <p class="contents_compressed" style="margin-top: 3; margin-bottom: 3">2. Valuation</p> <p class="contents_compressed" style="margin-top: 3; margin-bottom: 3">3. The Greeks</p> <p class="contents_compressed" style="margin-top: 3; margin-bottom: 3">4. Credit and Equity Considerations</p> <p class="contents_compressed" style="margin-top: 3; margin-bottom: 3">5. Convertible Arbitrage Techniques - Delta Hedging</p> <p class="contents_compressed" style="margin-top: 3; margin-bottom: 3">6. Gamma Capture Hedging</p> <p class="contents_compressed" style="margin-top: 3; margin-bottom: 3">7. Convertible Option Hedge Techniques</p> <p class="contents_compressed" style="margin-top: 3; margin-bottom: 3">8. Convertible Asset Swaps and Credit Default Swaps</p> <p class="contents_compressed" style="margin-top: 3; margin-bottom: 3">9. Non-traditional Hedges</p> <p class="contents_compressed" style="margin-top: 3; margin-bottom: 3">10. Portfolio Risk Management</td> </tr> </table> </td> </tr> </table> <p align="left" class="body_expanded"><strong style="font-weight: 400">The heart of the book is its discussion of standard hedge/arbitrage techniques, including delta hedges, gamma capture hedges and exchange-traded options hedges. There isn't much rocket science here. The techniques entail buying convertibles with undervalued optionality and then putting on a static delta, static gamma or dynamic hedge. However, the discussions are insightful, identifying issues and pitfalls that convertibles pose. A chapter discusses hedges that use credit derivatives to strip optionality from the credit risk. Another lengthy chapter discusses a variety of less common hedges. Most apply in unique circumstances, such as corporate distress or mergers.</strong></p> <p align="left" class="body_expanded"><strong style="font-weight: 400">While the book's non-technical nature is a strength, it is also a weakness. The key to any convertible arbitrage strategy is having a sophisticated valuation methodology. While Calamos covers the credit aspects of valuation in detail, his treatment of the financial engineering aspects is not something you could base a model on. In fairness, this aspect of convertible valuation is an extremely technical topic, and any attempt to do it justice would fundamentally change the character and audience of the book. </strong> </p> <p align="left" class="body_expanded"><strong style="font-weight: 400">In summary, this is a highly readable book. It is non-technical, but does not sacrifice depth. The book will teach you much about convertible arbitrage—as well as convertible bonds generally. It will appeal primarily to institutional investors who either invest in or are contemplating investing in hedge funds that employ convertible arbitrage. It is also a nice book for traders, risk managers, systems staff or back office employees to get oriented to the discipline. However, if you want to implement any of the techniques, you better be a financial engineer—or hire one!</strong></p> <p align="center" class="body"> </p> </td> </tr> <tr> <td width="50%" valign="bottom"> <table border="0" cellpadding="5" cellspacing="0" style="border-collapse: collapse" width="100%" bgcolor="#FFFFCC" id="table10"> <tr> <td width="100%" align="left"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td></tr> </table> </td> </tr> </table> <div align="left"> <div align="center"> <center> <table border="0" cellpadding="10" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" bgcolor="#FFFFCC" id="table11"> <tr> <td width="100%" align="center"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" bgcolor="#FFFFCC" id="table12"> <tr> <td> <p class="body" style="margin-bottom: 5; margin-left:10; margin-top:0"><b><font color="#333366" size="3">For related books, see sections:</font></b></p> <p class="bullet" style="margin-left: 10; margin-top: 5; margin-bottom: 5"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/markets_industries_hybrids.htm">Markets – Hybrids</a></p> <p class="bullet" style="margin-left: 10; margin-top: 5; margin-bottom: 5"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/portfolio_management_specialty_strategies.htm">Portfolio Management - Specialty Strategies</a></p> <p class="bullet" style="margin-left: 10; margin-top: 5; margin-bottom: 5"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/portfolio_management_hedge_funds.htm">Portfolio Management – Hedge Funds</a></td> </tr> </table> </td> </tr> </table> </center> </div> </div> </td> <td>  </td> </tr> </table> </div>  <table border="0" style="border-collapse: collapse" width="100%" cellpadding="0" id="table1" bgcolor="#FFFFFF"> <tr> <td colspan="2" height="12"> <p style="margin-top: 0"> </td> </tr> <tr> <td align="right"> <p align="left" style="margin-bottom: 2px"> <a target="_top" href="http://www.riskexpertise.com/link/advertising.htm"> <font size="1" color="#000000" face="Arial">Ads by Contingency Analysis.</font></a></td> <td align="left"> <p align="right" style="margin-bottom: 2px"> <a target="_top" href="http://www.riskexpertise.com/link/advertising.htm"> <font size="1" color="#000000" face="Arial">Advertise on this site.</font></a></td> </tr> <tr> <td align="center" colspan="2">  <iframe src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=iframe" allowtransparency="true" background-color="transparent" style="margin: 0px; padding: 0px; border-width: 0px" width="300" height="250" frameborder="0" marginwidth="0" marginheight="0" scrolling="no"> <![if lt IE 4]> <script src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=js" type="text/javascript"> </script> <noscript> <a href="http://servedbyadbutler.com/go2/;ID=147917;size=300x250;setID=93136"> <img src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=img" border="0" height="250" width="300" alt=""></a> </noscript><![endif]> </iframe>   </td> </tr> </table> <p align="center" style="margin-top: 20"> <map name="FPMap0_I1"> <area href="http://www.riskbook.com" shape="rect" coords="0, 0, 184, 29" target="_top"></map> <img border="0" src="../images/open_book_riskbook.gif" usemap="#FPMap0_I1" width="185" height="30"></p> <p class="a" align="center"><font face="Arial" size="2"><a href="../main/disclaimer.htm">disclaimer</a></font></p> <p class="a" align="center"><span class="verdana10">website:</span> <a target="_top" href="http://www.contingencyanalysis.com"> <font size="2" face="Arial">http://www.contingencyanalysis.com</font></a><br> <span class="verdana10">books direct link:</span> <a target="_top" href="http://www.riskbook.com"><font size="2" face="Arial">http://www.riskbook.com</font></a><br> copyright <font face="Times New Roman">©</font> Contingency Analysis, 1996 - current</p> <p class="a" align="center"><map name="FPMap1_I1"> <area target="_top" href="http://www.contingencyanalysis.com" shape="rect" coords="0, 0, 240, 88"> </map><img border="0" src="../images/logo_book_white.gif" usemap="#FPMap1_I1" width="241" height="89"></p>  </body>