The process of breaking up a convertible bond (CB) into two structured products: an asset swap (credit component) and a CB option (equity component). The credit component would suit fixed income investors who expect to get a certain spread over benchmark rate (i.e., LIBOR or Treasury), while the equity component would fit common equity investors who buy the CB option against a premium.

A structured product with the features of both debt and equity can be formed by simultaneously matching the asset swap trade with the CB option trade. As such, the right to call the CB can be exercised, with an asset swap transaction being canceled upon an option investor exercising the CB call option. This structured product helps dealers manage their position risks by setting off: the equity component and credit component cancel each other, leaving the dealer with an arbitrage profit.