KBC Alternative Investment Management (A): Convertible Bond Arbitrage Harvard Case Solution & Analysis

KBC Alternative Investment Management (A): Convertible Bond Arbitrage Case Solution

Instance A: To take out inexpensive unpredictability in Duke Energy convertible bonds, Mark Punt, a convertible arbitrageur at KBC OBJECTIVE, purchases the bonds and delta hedges them with a short position in the company's shares.

In order to handle the credit risk of his long convertible bond place, Mark faces a choice of hedging with CDS, shares of the company or out-of-the-money places on the company's stock. Main aspect to Mark’s hedging strategy is the grasp of negative correlation that are noticed in spreads and prices of shares of his company.

PUBLICATION DATE: October 01, 2004 PRODUCT #: INS638-PDF-ENG

This is just an excerpt. This case is about FINANCE & ACCOUNTING

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