Convertible Bonds Dynamic Arbitrage by Using Technical Analysis Adjustment

• Main Authors: Hung Wei Hsuan, 洪唯軒
• Other Authors: Kao Ming Sung
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/39299987181996266447

碩士 === 輔仁大學 === 金融研究所 === 97 === In recent years, investors have lost their money easily due to the increasing and fluctuating volatility of the market. This situation results in their lost confidence in subprime mortgage crisis. However, convertible bonds offer good chance for those investors because convertible bonds have pure bond value in bear market and convertible value in bull market. Convertible bonds arbitrage trading strategy is divided into two methods, one is static arbitrage and the other is dynamic arbitrage. Static arbitrage establishes its portfolio at single period and gains through disequilibrium between short and long position. Dynamic arbitrage means that the portfolio can adjust by hedge ratio changing. Because convertible bonds have non-linear price curve, dynamic hedging has the advantage of making profit in fluctuating stock price. We can adjust convertible bonds dynamic hedging ratios through subjective determine. If we consider the stock price going up all the time, we can decrease the hedging ratio of portfolios. There are many kinds of way to determine the market. This paper will use technical analysis indicators to adjust hedging ratios and will observe if this adjustment is able to increase portfolio return. In the empirical evidence of thirty convertible bonds, the outcome proves that, investors can earn positive return by using dynamic hedging strategy, but after the adjustment of hedging ratio by using technical indicators, the effect upon enhancing profits is less obvious. In the future, the market of convertible bonds will become well developed and ready for investors to make it spout into more trading strategies by executing dynamic arbitrage. In this method, reasonable return can be expected even though the uncertainty market.