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CHAPTER 4 - Hedge Fund Strategies > RELATIVE VALUE ARBITRAGE

RELATIVE VALUE ARBITRAGE

Relative value arbitrage strategy is very similar to fixed-income arbitrage in terms of analysis and construction, except it is not a riskless transaction. The relative value hedge fund manager takes a directional view on the movement of interest rates, monetary policy, credit spreads, or volatility. The strategy is mathematical in nature but does not rely on a computer-based algorithm like the systematic macro strategy does. The relative value hedge fund manager will analyze yield curves, volatility cubes, correlation matrices, and historical spreads between securities to determine cheap or expensive securities. He will then take a long position in the cheap security and a short position in the expensive security. He is betting that the s....

  

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