Merger Arbitrage Risk Model
13 Pages Posted: 6 Feb 2010
Date Written: February 1, 2007
Abstract
A traditional VaR approach is not suitable to assess the risk that merger arbitrage funds carry in their portfolios. We propose a simple two-state or three-state model that captures the risk characteristics of the deals in which merger arbitrage funds invest.This model has been tested on a set of mergers and acquisitions between large US public companies in 2005.
Keywords: Merger arbitrage, risk measurement
JEL Classification: C
Suggested Citation: Suggested Citation
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