I saw the following two ways to calculate the number of shares that need to be sold short to make the convertible bond delta neutral.
- Formula A: Conversion ratio x delta
- Formula B: Current bond price x delta / current stock price
Formula A is in CAIA’s textbook (P732). However, CAIA’s Workbook has both Formula A (P134) and Formula B (P159).
I use UpperMark that also has both formulas.
I don’t know which formula to use in the actual exam. Perhaps the one in the textbook?
What do you think?