Event-Driven and Arbitrage Strategies › Key Parameters
Michael BrenndoerferJanuary 6, 20261 min read
Quantitative FinanceAll chapters Part 11 of 15Quantitative Trading Strategies
Event-Driven and Arbitrage Strategies › Key ParametersOne section · Sections in this chapter4 / 11 ↓
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The key parameters for merger arbitrage models are:
- Spread: The difference between the offer price and the target's current price, capturing the potential return.
- Deal Probability (): The likelihood of the deal closing, which can be estimated fundamentally or implied from market prices.
- Downside Risk: The potential loss if the deal breaks, typically returning to the pre-announcement price.
- Time to Close (): The expected duration of the deal, used to annualize returns.
- Correlation: The tendency of deal risks to materialize simultaneously during market stress.