1. Case Study: Reverse-Convertibles and Volatility Trading This case study shows another example of volatility trading and reverse convertibles.

Read the case study below and answer the following questions.

a. What is a reverse-convertible bond? How would you decompose this instrument? How would a corporate treasurer use reverse-convertible bonds?

b. How are the market professionals using reverse-convertibles? Why is there a “flood”?

c. What is a synthetic convertible?

d. What is the other solution mentioned in the text? What are the possible risks behind this solution?