What is convertible arbitrage?

Convertible arbitrage essentially involves taking simultaneous long and short positions in a convertible bond and its underlying stock. The arbitrageur hopes to profit from any movement in the market by having the appropriate hedge between long and short positions.

What is an arbitrage strategy?

The arbitrage strategy takes a long position in the convertible bonds while shorting the stock of the company. A convertible bond can be converted to equity in the underlying company at a specific price at some point in the future.

How can arbitrageurs exploit the discount on convertible bonds?

Arbitrageurs can exploit the discount on convertible bonds while limiting exposure to unwanted risks, through the strategy of longing the convertible bond and shorting the underlying assets . To hedge the equity portion, we can short stock as the price rises, or cover additional stock if the price falls.

Which mutual funds have convertible arbitrage & relative value?

That said, a few smaller funds that are known for convertible arbitrage and relative value include Advent, Alma Capital, Arrowgrass, Bluefin, Centiva, Context Capital, Highbridge, Hudson Bay, Lazard Rathmore (OK, not really an independent fund), Opti Capital, Pine River, and Suttonbrook.