Some hedge funds refer to their strategies as "riskarbitrage strategies." What does that mean?

What will be an ideal response?

A risk arbitrage strategy involves transaction-specific investigationthat desires to profit by obtaining securities which are discounted from the value to be paid for them such as in a planned merger or acquisition due to the uncertainty of the timing and completion of the transaction. The snagis in analyzing the risk of postponement or non-completion and deciding when it is best to take a position in order to achieve profits. The position can be taken anywhere from the start of a plannedtransaction to its conclusion. Risk/merger arbitrage portfolio managers typically seek speculative profits from the purchase of shares in forecasted acquisition targets, while maintaining defensive positions through hedges in acquiring companies and disciplined risk management.

Hedge fund managers believe the misalignment will generate a profit with little risk andtoo often refer to such a strategy as a "risk arbitrage strategy." This is an unfortunate mislabelingof a convergence trading strategy because an arbitrage strategy indicates that there is no risk.