Convertible arbitrage
Definition
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. See: Chinese hedge and setup
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Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University
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