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Convertible Arbitrage

Study convertible bond valuation, delta hedging, credit overlays and the financing risks of convertible arbitrage.

Why study Convertible Arbitrage?

A convertible combines equity optionality, credit exposure and contractual features in one security. Evaluating an arbitrage idea means understanding that combination alongside borrow, funding and the practical limits of a hedge.

Who this is for

For learners with option-pricing, fixed-income and portfolio foundations who want to study hybrid securities.

What you should be able to do

  • Relate convertible contract features to valuation.
  • Analyse delta hedging and credit overlays.
  • Evaluate portfolio risk, financing and limits to the trade.

An example of the work this prepares you for

A convertible trade case explaining valuation drivers, hedge exposures and how credit or financing stress changes the trade.

Prerequisites and suggested preparation

You should be comfortable with the background covered in these programmes. Equivalent knowledge from university study or independent learning is also suitable.

The goal is to use the foundations in context: explain the assumptions, carry out a calculation and interpret the result. If one of those steps feels unfamiliar, review the linked preparation first.

A preview of the learning journey

The lessons build towards these kinds of reasoning and practical work.

Read a hybrid contract

Connect conversion features to equity and debt exposures.

Assess a hedge

Explain what an equity hedge removes and what risks remain.

Test the trade economics

Consider financing, borrow and portfolio constraints alongside model value.

Members work through the detailed lessons, derivations, worked examples and solutions inside the learning dashboard.

Explore lesson previews by topic

Open a topic preview to see its introduction, learning objectives and prerequisites. Previous and next links let you explore the lessons in study order. Full lessons are available in the member dashboard; selected samples are free to read in full.

Topic previewConvertible Anatomy and Markets4 lessonsTopic previewConvertible Valuation7 lessonsTopic previewDelta Hedging and the Classic Trade7 lessonsTopic previewCredit Overlays and Nontraditional Hedges6 lessonsTopic previewPortfolio Risk, Financing and Limits7 lessons

Free resources to start learning

Use these alongside the programme or to prepare independently. Start with the introductory material, work through an example, then return to the research papers when the underlying ideas are familiar.

  1. University course · Free

    Foundations of Financial Engineering

    Columbia · Martin Haugh

    Review credit modelling and option pricing as complementary foundations.

  2. Documentation · Free

    QuantLib

    QuantLib contributors

    Explore the library’s convertible-bond examples and modelling conventions.

  3. Video lectures · Free

    Finance Theory I: lecture videos

    MIT OpenCourseWare · Andrew Lo

    Revisit fixed-income and option lectures to strengthen the two sides of the instrument.

  4. Research paper · Free

    Coherent Measures of Risk

    Philippe Artzner, Freddy Delbaen, Jean-Marc Eber and David Heath

    Use the risk-measure paper to think about residual portfolio exposures beyond a delta hedge.

    View research in Directory →

Optional textbook reference

These books are paid references. Check your university or public library for access.

  1. Textbook · Paid / library

    Options, Futures, and Other Derivatives

    John C. Hull · Pearson

    Optional textbook for the option and credit concepts needed before hybrid valuation.

Links reviewed 14 October 2026. Free refers to the linked reading, notes or videos; printed books and certificates may cost extra.

Find more papers and learning materials in the SelfMadeQuant Directory.

Where this programme fits

  • Derivatives Pricing and Model Quant · elective programme
  • Risk and Model Validation Quant · elective programme

Ready to study Convertible Arbitrage? Explore membership for access to the complete lessons.

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