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Convertible Arbitrage: Insights and Techniques for Successful Hedging Hardcover – June 13, 2003

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Editorial Reviews


"...filled with in-depth insights and a wide range of convertible topics, provides a thorough explanation..." (Financial World, January 2004)

From the Inside Flap

Investment professionals familiar with convertible arbitrage techniques recognize the strategy as a rock-solid tool for generating significant returns regardless of market movements. It’s no surprise, then, that amidst the backdrop of market volatility and investor uncertainty, the field of convertible arbitrage keeps growing. Since 1993, the convertible arbitrage market has grown at an astounding 45% compound annual growth rate through the first half of 2002 to $24 billion.*

In Convertible Arbitrage: Insights and Techniques for Successful Hedging, renowned investment expert Nick P. Calamos shows you ways to make the most of convertible arbitrage, explaining how to boost returns while decreasing risk–no matter what the market is doing.

The practice of convertible arbitrage takes advantage of the unique hybrid nature of convertible securities, which combine both fixed-income and equity characteristics. It typically involves matching a long position in convertible securities–usually convertible bonds–with a short position of corresponding stock. The bond pays interest and guarantees a yield upon maturity–but you also can participate in the movement of the underlying stock because a convertible bond’s option component makes it readily convertible into stock. Convertible arbitrage thus allows investors to create positions that achieve either market-neutral returns or that have a bias towards a security’s future price, offering tools to both the defensive and aggressive investor.

This not-to-be-missed guide gives you:

  • A top-to-bottom overview of convertible arbitrage–its history, how it works, and why it is especially useful in a volatile market
  • In-depth coverage of convertible valuation models and the "greeks," the statistical qualifications of convertible functions
  • Reasons why the credit and business valuation of a convertible can make or break your hedge position
  • A thorough review of convertible arbitrage techniques–from delta hedges and convertible option hedge techniques to swaps and nontraditional hedges
  • An insider’s guide to portfolio risk management, including tips on portfolio evaluation, risk analysis, and optimization

The array of convertible securities available–and the ever-shifting financial engineering behind them–demands a practical working knowledge of convertible arbitrage hedging techniques. Not only does Convertible Arbitrage put those techniques at your fingertips, it also helps you use those techniques to prepare for–and profit from–new twists in convertible terms, types of securities, or derivative hedge products.

*Tremont Advisers, Inc.

"The Calamos Convertible Fund offers the Holy Grail in investing–a long-term return superior to the index with less volatility."
–William Harding, Analyst
Morningstar Investment Services


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Product Details

  • Hardcover: 272 pages
  • Publisher: Wiley; 1 edition (June 13, 2003)
  • Language: English
  • ISBN-10: 0471423610
  • ISBN-13: 978-0471423614
  • Product Dimensions: 6.3 x 1.1 x 9.1 inches
  • Shipping Weight: 1.2 pounds (View shipping rates and policies)
  • Average Customer Review: 4.0 out of 5 stars  See all reviews (12 customer reviews)
  • Amazon Best Sellers Rank: #337,897 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

13 of 14 people found the following review helpful By ServantofGod on October 13, 2004
Format: Hardcover
I am not saying this is not a good book. In fact, this is by far the best I had come across on Convertible Arbitrage. It's so informative and well written that it should be a handbook for hedge fund professionals or finance professors. However, it's far beyond the comprehension of the investment public who would surely be confused by the vast amount of greek alphabets, financial equations and graphs. Of course, for those affluent readers (time- and money-wise) who want to learn, say, Bearish Tilt Gamma Convertible Hedge, Vega Hedge thru Volatility Swap etc. despite the technicalities and scale issues facing individual investors, it's definitely not a bad bet.
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14 of 16 people found the following review helpful By Analyst on May 16, 2005
Format: Hardcover
To successfully employ convertible arbitrage, you need to value convertible bonds (CBs) correctly to be able to find underpriced CBs to buy, and then you need to know the number (delta) of stocks to short sell to hedge your position. How do you do this? The book correctly tells you that a binomial method must be used, but it spends only 10 pages or so on this matter! And even if you are proficient with binomial valuation, this description is quite poor and confusing. Most important though, the book does NOT cover the more complex attributes of convertible bonds (such as call and put provisions) that are very common. How can you expect to find underpriced CBs if you don't value them properly? If you truly want to learn convertible arbitrage, I instead recommend the book "Pricing convertible bonds" by Kevin Connolly who carefully explains all the things you need to know about the valuation of CBs, so that even if you have never heard about binomial trees you will still understand it (he also supplies a disc with excel files).
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8 of 8 people found the following review helpful By A Customer on July 23, 2003
Format: Hardcover
This book joins a number of 'hot' topic based books on convertible arb but makes itself stand out by being the first to truly discuss the details of the arbitrages, how to trade and hedge them and how to identify them efficiently.
Further credit (excuse the pun) should be given for extension into the CDS market and the use of more advanced credit hedging techniques.
A must read for any academic interested in studying the fixed income arbitrage markets and a useful reference for any practitioner who thinks he knows what is involved in running an arb book.
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5 of 5 people found the following review helpful By Jack Doh on September 18, 2006
Format: Hardcover
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.
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7 of 8 people found the following review helpful By Quant Jockey on May 17, 2007
Format: Hardcover
This is no book for beginners, as I have a background in economics, econometrics, and trading, but I find the prose jumps over and casually breezes past assumptions, leaving me thinking I must have missed something. In almost each sentence and paragraph you have to absorb and absorb and keeping trying to figure out the author's angles on what he means. Currently I am on pages 139-140, and I find impatience when encountering one-time blithe statements like "In practice, some slight additions to the short position on the way up will lock in some gains and avoid a hedge ratio that is extremely low relative to the delta." Or, "The hedge ratio on a leveraged bullish tilt position should generally be slightly more than the hedge ratio on the un-levered bullish tilt position to reduce some of the added volatility in the return." The syntax while trying to be plain language, loses the reader. I keep asking what exactly is "generally be slightly more than the hedge ratio" mean in the context of a portfolio; and do you own one each of the levered and unlevered to reduce volatility, and if not how can I be so confident my hedge ratio is thus adjusted properly if the volatility is well, volatile? It is like he writes to impress, which is not a bad thing by itself. It's clear he's having a good time. But if read aloud at a conference of CEO's, I can envision them nodding their heads and furrowing their sagacious brows without actually a full understanding of what is said.

So the prose is dense. But it eventually "sounds" right to the ear if read over a couple times quickly, but still loaded with very subtle ideas watered down into plain words which can makes me stop and pause to consider each idea as if it were some kind of rosetta stone to the prior material.
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