Arbitrage and the Risk

Talking about Arbitrage – drama film directed by Nicholas Jarecki and starring Richard Gere. A troubled hedge fund magnate blogdesperate to complete the sale of his trading empire makes an error that forces him to turn to an unlikely person for help.

It is well-known that risk arbitrageur play an important role in the market for corporate control. After a tender offer, the trading volume increases dramatically in large part because of risk arbitrageurs activity. They take long positions in the target stock, in the hope that the takeover will go through. They are also usually hedged by taking short positions in the acquirer’s stock.

Risk arbitrage used to be a very inconspicuous activity, but in mid-70s, the emergence of Ivan Boesky and the increasing volume of corporate takeover deals contributed to make it more visible. Attracted by the high rewards, many firms started new arbitrage departments and more people became involved in this activity. Continue reading “Arbitrage and the Risk”