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Capital Structure Arb strategies
5 documented Capital Structure Arb strategies from our reference catalogue of 20,000 — names, logic and sources. Catalogued here, tested honestly, and — usually — buried in the graveyard.
CDS-equity stat arb
CDS-EquityNeutral
Trade implied default prob from equity options vs CDS spread; Merton model
Source: Hedge Fund
Long bond short equity (broken capital)
Equity-DebtNeutral
Long distressed bond short stock when equity overvalued vs debt recovery
Source: Cap Stru Arb
Long equity short bond (busted convertible)
Equity-DebtNeutral
In Z-spread tightening trades go opposite when stock seems too cheap vs bond
Source: Cap Stru Arb
Same-rank bond arb
Pari PassuNeutral
Two pari-passu bonds same issuer different liquidity; arb spread divergence
Source: Bond Arb
Senior vs subordinated bond arb
Senior-SubNeutral
Long sub short senior or vice versa based on relative recovery expectations
Source: Distressed
An encyclopedia of publicly documented strategies for education. YCAI does not recommend, endorse, or trade any of these. Not investment advice.