KBC Alternative Investment Management (B): Capital Structure Arbitrage Case Solution
The mentor goals are to highlight capital framework arbitrage since a technique makes use of mispricing in between financial obligation (bonds or CDS) and capital based upon a Merton design of a credit rating danger. Connect to modifiable bond arbitrage.
Case B: Derived on a Merton-type architectural design of credit threat, Steve Dash, a trader at KBC AIM, views in which British Airways'CDS are actually mispriced related to the business's share cost. Steve needs to determine which field to place on to make use of the prospective mispricing and exactly what the primary revenue chauffeurs of this method are. At the exact same time, he has to understand the threats of his technique and regardless if the "mispricing" could be derivable to elements that the capital framework arbitrage modedl isn't really able to record.
published: 10 Jan 2004
This is just an excerpt. This case is about Finance
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