The cheap convertible identified in the preceding material is not a trade until the desk can finance it, borrow against it, hedge its shared risks, and survive a disorderly exit. This topic turns single-name valuation and delta hedging into a book-management discipline: map risks beyond Greeks, set gross exposure, shock the joint factor stack, choose systematic overlays, and define the conditions under which the book must de-risk.
Calamos supplies the desk mechanics—leverage, scenario worksheets, index puts, rates, volatility and credit overlays—while the Handbook supplies the risk taxonomy and the limits of VaR. The formal agency explanation for why capital leaves at the worst moment remains in the finance-pillar sibling, The Limits of Arbitrage; this topic applies that insight to convert positions rather than rebuilding the theory essay.
By the end of this note you should be able to:
- separate market, model, operational, funding, and legal risks in a convert package;
- translate gross leverage and aggregate Greeks into a joint scenario and liquidity budget;
- decide when an index, rates, volatility, or credit overlay belongs at book rather than name level;
- explain how forced de-leveraging changes both observed cheapness and executable capacity;
- build and defend an entry, monitoring, and exit plan spanning the Programme's five stages.
In this lesson
- Contents
- Reference (not on the Programme route)
- The big picture
The full lesson is for members.
Read the full lessonNew to SelfMadeQuant.com? See membership options or browse the Convertible Arbitrage syllabus.