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Convertible Arbitrage |
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Convertible ArbitrageIn 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.Convertible Arbitrage Similar MatchesConvertibleConvertibleConvertibles are bonds issued by companies which can be converted into ordinary shares or preference shares at a given price at a future date. For example a convertible might pay 6% in income, and give the holder the right to 5 ordinary shares for every £20 of bond value.They are a popular means of raising capital when interest rates are high, because the interest which the company has to pay on them is lower than on an unconvertible bond (the option to convert is deemed to be worth something to the holder).From an investor's point of view, convertible bonds can be attractive if the company's stock is volatile because they provide some of the security of a bond whilst at the same time allowing the investor to convert to shares if the company's stock rises. Convertible bondConvertible bondGeneral debt obligation of a corporation that can be exchanged for a set number of common shares of the issuing corporation at a prestated conversion price. Mandatory convertiblesMandatory convertiblesA debt instrument that is exchangeable at some point for equity in the form of common stock or a new issue. Zero coupon convertible securityZero coupon convertible securityA zero-coupon bond convertible into the common stock of the issuing company after the stock reaches a certain price, using a put option inherent in the security. Also refers to zero-coupon bonds, which are convertible into an interest bearing bond at a certain time before maturity. Convertible priceConvertible priceThe contractually specified price per share at which a convertible security can be converted into shares of common stock. Further SuggestionsCash plus convertibleconvertible bond High premium convertible debenture Convertible 100 Convertible currency Convertible security convertible term insurance Convertible preferred stock Convertible eurobond |
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