Suppose you have a model for pricing convertible bonds that accounts for equity risk, interest-rate risk, and
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Suppose you have a model for pricing convertible bonds that accounts for equity risk, interest-rate risk, and credit risk and is calibrated using observable stock prices, bonds, and credit default swaps. If the model price of the convertible bond exceeds that of the market and you believe the model is accurate, what broad strategy will you adopt to construct an arbitrage portfolio?
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Since the model indicates that convertible bond is underpriced in the market take a long posi...View the full answer
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