4.4 -Relative Value Hedge Funds Flashcards
1
Q
Convertible bond value
A
CBV = straight bond value + call option value
2
Q
Convertible bond option strike price
A
Option Strike Price = convertible bond face value / conversion ratio
3
Q
Conversion value
A
= conversion ratio * stock price
-> if market value of bond is greater than conversion value, bond is trading at a premium
4
Q
Conversion premium
A
ConvPremium = (convertible bond price - conversion value) / conversion value
5
Q
Greeks - Delta
A
- change in value of option with respect to a change in value of the underlying asset
6
Q
Gamma
A
-second derivative, measures how delta changes with changes in the price of the underlying asset
7
Q
Variance Swap Payoff
A
= variance notional value * (realized variance - strike variance)
