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Asset Swapped Convertible Option Transaction (ASCOT)


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Better stop short than fill to the brim. Oversharpen the blade, and the edge will soon blunt. Amass a store of gold and jade, and no one can protect it. Claim wealth and titles, and disaster will follow. Retire when the work is done. This is the way of heaven.

— Tao Te Ching

An asset swapped convertible option transaction (ASCOT) is a structure in which an option on a convertible bond is used to separate a convertible bond into its two components. The components being separated are the bond with its regular coupon payments and the equity option that functions as a call option. The ASCOT structure allows an investor to gain exposure to the option within the convertible without taking on the credit risk represented by the bond.

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