Overview

Convertible arbitrage starts with a security that lives on the crossroads of equity, credit, and rates — not with a hedge ratio. Before a desk can call a bond "cheap" or size a short stock leg, it needs the contract language (conversion ratio, soft call, put), the two floors that bound every price (investment value and parity), and a map of who issues, who holds, and where the prospectus hides the traps. This topic builds that map: terminology and payoff, bond-floor/parity/premiums geometry, hybrid structures beyond the classic convertible, and the market machinery of prospectuses and participants.

By the end of this note you should be able to:

• read a convertible term sheet and compute conversion ratio, conversion price, and maturity payoff $\max(N, C_r S)$;
• locate a market price relative to the bond floor and parity, and quote investment and conversion premiums;
• recognise mandatory, reverse, exchangeable, and cross-currency structures and say what each does to the arb;
• identify who sits on each side of a new issue (outright vs arb) and which prospectus clauses change hedge risk.

1. Contents
2. The big picture