Updeted from 7:07 a.m. EDT
Most risk-arbitrage hedge funds this year are down huge, as the greatest credit crunch in financial market history has scrapped a few prominent deals, causing some serious pain for those who bet on a merger's final price.
In the marketplace, risk arbitrage is the practice of taking advantage of a price differential between two or more assets. Generally speaking, a "risk-arb" trader might buy the stock of a company that is the target of a takeover while shorting the stock of the acquiring company. Here, the market price of the target company is less than the price offered by the acquiring company, as the probability and timing of the takeover is never official.