ffris.qxd 7/1/03 1:53 PM Page iii Convertible Arbitrage Insights and Techniques for Successful Hedging NICK P. CALAMOS John Wiley & Sons, Inc. ffris.qxd 7/1/03 1:53 PM Page iii ffris.qxd 7/1/03 1:53 PM Page i Convertible Arbitrage ffris.qxd 7/1/03 1:53 PM Page ii ffris.qxd 7/1/03 1:53 PM Page iii Convertible Arbitrage Insights and Techniques for Successful Hedging NICK P. CALAMOS John Wiley & Sons, Inc. ffris.qxd 7/1/03 1:53 PM Page iv Copyright © 2003 by Nick P. Calamos. All rights reserved. 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For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at 800- 762-2974, outside the United States at 317-572-3993 or fax 317-572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our Web site at www.wiley.com. Quotations of Warren E. Buffett are excerpted with permission from previously copyrighted material. Library of Congress Cataloging-in-Publication Data Calamos, Nick, P. 1961− Convertible arbitrage: insights and techniques for successful hedging/Nick P. Calamos. p. cm. — (Wiley finance series) Includes index. ISBN 0-471-42361-0 (CLOTH) 1. Hedging (Finance) 2. Arbitrage. I. Title. II. Series. HG6024.A3C345 2003 332.64′5—dc21 2003000580 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 ffris.qxd 7/1/03 1:53 PM Page v To my wife Kim, my parents Joan and Angelo, and my children, Zach, Katie, Kristie, and Cole ffris.qxd 7/1/03 1:53 PM Page vi ffris.qxd 7/1/03 1:53 PM Page vii Acknowledgments T his book’s target audience includes beginner and intermediate convertible specialists, hedge fund consultants, and convertible securities traders. It should also be a useful handbook for retirement and endowment plan spon- sors that invest in hedge funds and individual investors who would like to understand more about what their convertible hedge manager is doing and what the risks may be. I want to thank John Calamos, Sr. for the opportunity he provided me 20 years ago to join Calamos Asset Management, which was then a small specialist convertible securities investment shop managing $35 million in client assets. Today, the firm has grown to become Calamos Investments, one of the largest convertible managers in the country as well as a respected growth-equity, convertible-arbitrage, and high-yield manager with more than $13 billion in assets under management. Over the years John has been a mentor and consultant to me in business as well as in my personal life. He has offered me many opportunities and challenges to grow professionally and his commitment to constant improvement and lifetime learning has been an example that I hope to pass on to my children. Put simply, John’s guidance has been instrumental in my career and provided the foundation for this book. I also want to thank my wife Kim, as in all things over the past 22 years, for her love, patience, and support during the many weekends, evenings, and vacations spent in my office writing this book. A number of colleagues at Calamos Investments have had a hand in the completion of this book. I want to thank Jeff Kelley who spent many hours editing and improving my rough draft. His hard work and talent allowed this book to progress quickly and provided much better flow than would otherwise have been the case. I also want to thank Marilyn Dale, who coor- dinated most of the communication and scheduling with the publisher, and kept me on schedule. Finally, I want to thank Tony Onorati and Chris Hart- man who helped with many of the graphs and charts in the book and Jeff Scudieri who reviewed drafts and provided valuable feedback. vii