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The Journal of Alternative Investments

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Primary Article

Case Study

Convertible Arbitrage—U.S. Market Trends and Global Position Winners/Losers

Scott Lange, Dan Sommers, Charles Seidler, Rashmi Jolly, James Williams and Christina Um
The Journal of Alternative Investments Fall 2002, 5 (2) 78-92; DOI: https://doi.org/10.3905/jai.2002.319056
Scott Lange
Director of U.S. convertible research at Goldman Sachs Global Convertible Securities Group in New York.
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  • For correspondence: scott.lange@gs.com
Dan Sommers
U.S. convertible research analysts at Goldman Sachs Global Convertible Securities Group in New York.
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  • For correspondence: daniel.sommers@gs.com
Charles Seidler
U.S. convertible research analysts at Goldman Sachs Global Convertible Securities Group in New York.
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  • For correspondence: charles.seidler@gs.com
Rashmi Jolly
U.S. convertible research analysts at Goldman Sachs Global Convertible Securities Group in New York.
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  • For correspondence: rashmi.jolly@gs.com
James Williams
Director of international convertible research at Goldman Sachs Global Convertible Securities Group in London, England.
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  • For correspondence: james.williams@gs.com
Christina Um
An international convertible research analyst at Goldman Sachs Global Convertible Securities Group in London, England.
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  • For correspondence: christina.um@gs.com
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Abstract

After coping with sagging equity volatility in the spring (and numerous concerns about how far it might fall), the emergence of a new round of corporate accounting issues combined with evidence of continued shaky operating results to generate more than enough volatility in the second quarter for convertible arbitrageurs. However, as is typically the case, the large upward volatility spikes were frequently accompanied by credit-spread deterioration and premium erosion among names where any operational question marks existed. The rocky environment has led to a renewed focus on risk management as managers reevaluate exposures across their portfolios. This activity has prompted sales in more speculative names, with a lack of buyers for this supply pressuring premiums in the associated issues. Meanwhile, however, arbitrageurs continue to have ample available buying power. As a result, among more “visible” names, implied volatilities rose slightly during this difficult period, and we believe will remain firm in coming months. In this case study, we provide an overview of convertible arbitrage trends and selected winner and loser arbitrage positions in the U.S., Europe, and Asia.

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The Journal of Alternative Investments
Vol. 5, Issue 2
Fall 2002
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Case Study
Scott Lange, Dan Sommers, Charles Seidler, Rashmi Jolly, James Williams, Christina Um
The Journal of Alternative Investments Sep 2002, 5 (2) 78-92; DOI: 10.3905/jai.2002.319056

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Case Study
Scott Lange, Dan Sommers, Charles Seidler, Rashmi Jolly, James Williams, Christina Um
The Journal of Alternative Investments Sep 2002, 5 (2) 78-92; DOI: 10.3905/jai.2002.319056
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