by Nick P. Calamos
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Product Description
Minimize risk and maximize profits with convertible arbitrage
Convertible arbitrage involves purchasing a portfolio of convertible securities-generally convertible bonds-and hedging a portion of the equity risk by selling short the underlying common stock. This increasingly popular strategy, which is especially useful during times of market volatility, allows individuals to increase their returns while decreasing their risks. Convertible Arbitrage offers a thorough explanation of this unique investment strategy. Filled with in-depth insights from an expert in the field, this comprehensive guide explores a wide range of convertible topics. Readers will be introduced to a variety of models for convertible analysis, "the Greeks," as well as the full range of hedges, including titled and leveraged hedges, as well as swaps, nontraditional hedges, and option hedging. They will also gain a firm understanding of alternative convertible structures, the use of foreign convertibles in hedging, risk management at the portfolio level, and trading and hedging risks. Convertible Arbitrage eliminates any confusion by clearly differentiating convertible arbitrage strategy from other hedging techniques such as long-short equity, merger and acquisition arbitrage, and fixed-income arbitrage.
Nick Calamos (Naperville, IL) oversees research and portfolio management for Calamos Asset Management, Inc. Since 1983 his experience has centered on convertible securities investment. He received his undergraduate degree in economics from Southern Illinois University and an MS in finance from Northern Illinois University.
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Average Customer Review:
0 of 0 people found the following review helpful:
 Too techincal for a novice, too naive for a professional, 2008-01-08
Calamos has put together a useful reference for those interested in learning more about the proper pricing of convertibles. However his own agenda is quite transparent when looking at his own performance - picking the bottom (2002) of the CB wipeout to chart his own performance.
There are other gaps such as a lack of consideration of stock price movement and its influence on omicron (change of CB prices w/ resepct to credit spread). This has been researched by Berger and others - it the stock craps out, one side of the market is saying the credit worthiness of the issuer has declined.
If you are really going to *TRADE* a CB book, you need to quantify as many of these variables as possible with respect to each other. No risk factor exists in a vacuum, but Calamos seems to skip this level of integration.
If you are not a market practioner but would like to be, read this before an interview. Otherwise, it inhabits that middle ground of being too techincal for a novice and too naive for a professional.
4 of 4 people found the following review helpful:
Requires a very, very careful approach...., 2007-05-18
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. At the same time it gets me to pause and think, which is an upside and rewards patience. But it's getting harder to gauge at this chapter how much progress I have made or not made, but I optimistically press on. I keep it hand so I can have more chances to peek inside this mysterious veil of conv arb. and learn something new and interesting.
It would be helpful to have more specific details where a natural question of 'why?' occurs if asked by a reader. From my own perspective, formulas would be far more compact and precise in conveying these ideas. English studies or philosophy enthusiasts may find it an enjoyable challenge to discern the Da Vinci-code like meanings.
3 of 3 people found the following review helpful:
good but cryptic, 2006-09-18
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.
1 of 1 people found the following review helpful:
 An Excellent Primer on the subject, 2006-08-23
As a technologist charged with implementing a convertible arbitrage fund, this book was incredibly helpful. By reading it, I learned enough about the strategy and how it works to have intelligent conversations with portfolio managers and analysts and understand what needs to be done to make it work. The book covers the Greeks and why they matter, and gives explanations of the strategies that are easily understood, but whose details are laid out in sufficient depth that the layperson might not be able absorb them all the first time through.
The books doesn't, and really can't, get into issues relating to data providers, prime brokers, and other execution-related topics. Yet it does cover almost every permutation of the strategy that you might find currently being implemented by a CA fund.
Overall, I think that this book provides an excellent grounding in the strategy, is a very engaging read, and will be a good reference as your understanding of the subject grows.
In closing, let me say this: The chapter on the Greeks alone justifies the purchase of this book. I have received questions from people wanting to know how I gained such depth of understanding in convertible/capital structure arbitrage so quickly, and I do not hesitate to hand them this book. (Well, maybe there is some hesitation.)
2 of 47 people found the following review helpful:
 Do it yourself: no need for this book, 2005-10-06
I have not read this book,but if you are really serious about arbitrage you should be able to write a program, that simulates the Black-Sholes model using discrete mathematics and random walk.
In short, you should be able to, from first principles, derive all you need to know about arbitrage.
But for those of you that prefer canned solutions, this book is OK I suppose.
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