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PARMALAT

11/12/03 : Long €1mm Parmalat CB 0.875% ’21  @ 62 – 0.4 accrued

11/12/03 : Short €1mm Parmalat 6.25% ’05@ 64 + 5.5 accrued

Performance of the pair trade in a bankruptcy scenario.

Base Recovery Rate (RR) for bondholders assumed to be @ 15%

Double Guarantee on CB 0.875% 2021 increases RR to 30% in best case outcome.

Accrued Interest pickup = 5.1 points

Expected Return (Worst Case: both bonds RR @15%)  = 2 + 0 + 5.1 = 7.1 points

Expected Return ( Best Case: double guarantee gives full 30 point value) = 2 + 15 + 5.1 = 22.1points

Non-directional pair trade – profit from volatility without directional risk

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