According to Citigroups announcement on Feb. 27, 2009, each preferred share (Series F) would be converted to
Fantastic news! We've Found the answer you've been seeking!
Question:
- According to Citigroup’s announcement on Feb. 27, 2009, each preferred share (Series F) would be converted to 7.308 common shares. Suppose that the common share price was $1.50 and the preferred share price was $8.14 on that day. You took advantage of the deviation from the law of one price by buying one preferred share and shorting the number of common shares to be converted to at the Feb. 27 prices. To establish your arbitrage position, you need to satisfy the requirements of Reg. T: deposit a 50% margin for both your long and short positions. This deposited margin is your equity in the arbitrage position. Suppose on March 11, the common and preferred share prices moved to $2.19 and $9.62 respectively.
- What was the return on your arbitrage position - change in your equity position (in percentage, keep two decimals) on March 11, if you held position till that day, not considering any costs of establishing and maintaining the strategy over time?
Related Book For
An Introduction to Derivative Securities Financial Markets and Risk Management
ISBN: 978-0393913071
1st edition
Authors: Robert A. Jarrow, Arkadev Chatterjee
Posted Date: