Jason Schmidt works for a hedge fund and he specializes in finding profit opportunities that are the result of inefficiencies in the market for convertible bonds—bonds that can be converted into a predetermined amount of a company’s common stock. Schmidt tries to find convertibles that are priced inefficiently relative to the underlying stock.

The trading strategy involves the simultaneous purchase of the convertible bond and the short sale of the underlying common stock. The above process could best be described as:

A. Hedging.

B. Arbitrage.

C. Securitization.