convertible bond arbitrage


An investment strategy where one position is taken in convertible fixed-income securities while an offsetting position is taken in the underlying common stock. The goal is to take advantage of the disparity between the strike (conversion) price and the stock price at the required conversion time. The move is typically neutral (no gain or loss) but the volatility risk is lowered; this allows the arbitrageur to obtain the stock with less risk. For example, a convertible bond is purchased while short-selling the stock.
Browse Definitions by Letter: # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
convertible bond convertible currency