Risk Arbitrage
topic on 1 show · 5 statements across 4 episodes
5 statements about Risk Arbitrage, every show
Lyon: Risk arbitrage generated 20% returns historically due to market inefficiencies
“Back in the day, risk arb was an amazing business. It wasn't five percent. It was 20%. I was thinking back about, God, I wish I knew what I know now then, because having a market that could produce those rates of return by being one of the few participants is …”
Risk arbitrage carries jump-to-default risk with no trading out
“To use a credit term on risk arbitrage, there's a lot of what I'm going to call jump to default risk in risk arbitrage, where if a deal goes bad, it typically is going bad very quickly and in an unexpected way because a lot of risk arbitrage deals have probabi…”
Brosens: High-volatility risk arbitrage requires dollar hedging over share hedging
“If you hedged share for share, you were frequently vulnerable to the dollar spreads widening because both companies would double. So both companies double, the percentage spread stays the same, the dollar spread doubles. So you needed to be more closely dollar…”
Standard risk arbitrage offers an unfavorable asymmetric risk-reward profile
“Risk arbitrage, betting on whether a deal's going to go through, and if it breaks, you lose 15 dollars. If it goes through, you make a dollar or 75 cents, but you made it in two months, so it was a great annualized return. So lose 15 dollars, make a dollar. Se…”