Yankel Stein is the chief investment officer of a large charitable foundation based in the United States. Although the foundation has significant exposure to alternative investments and hedge funds, Stein proposes to increase the foundation’s exposure to relative value hedge fund strategies. As part of Stein’s due diligence on a hedge fund engaging in convertible bond arbitrage, Stein asks his investment analyst to summarize different risks associated with the strategy.

Describe how each of the following circumstances can create concerns for Stein’s proposed hedge fund strategy:

i. Short selling ii. Credit issues iii. Time decay of call option iv. Extreme market volatility

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Short selling Credit issues Time decay of call option Extreme market volatility Describe how each of the following circumstances can create concerns for Stein's proposed hedge fund strategy: