Analysis of Convertible Bonds Hedging Strategy and Risk with Common Stock

摘要

This paper analyzes the hedging strategy and risks of convertible bonds with common stock.The purpose of hedging is to reduce and control risk.Undervalued convertible bonds offer an opportunity for conservative investors willing to use hedging techniques.Hedges can retain a portion of the stock's potential by selling short a limited quantity of underlying common stock against a convertible while reducing,or even eliminating,stock market risk.Or they can swap upside potential for downside profits by shorting more of the stock.Carefully balancing the use of margin and hedging ratios can further enhance the risk reward relationship.