Arbitrage hedge fund primer: venturing into volatility

In summary

Arbitrage is a widely used term in finance that encompasses a broad range of strategies designed to take advantage of pricing inefficiencies across markets. This primer will concentrate on arbitrage hedge fund strategies that primarily trade volatility instruments, convertible bonds, and other securities across the capital structure. These strategies look to benefit from mispricings of the same or closely related instruments, such as from pricing uncertainties in options and other derivatives. With this focus, some funds aim to generate returns that are largely independent of broader market movements, while others use options as a form of insurance. For each arbitrage sub-strategy grouping presented, a detailed overview is provided, including the strategy description, observed trends, key challenges, historical performance across different market environments, and anticipated risk-return profiles.