Range Accrual Swaps
RANGE ACCRUAL SWAPS are swaps where in the payoff is dependent on a benchmark rate(say LIBOR) falling within a particular range. For e.g. if the Libor falls within 2% and 3% the holder of the note will get say a (fixed rate* range/total no of days) where range= no of time libor is within the particular range. Valuation of these notes have to be done by simulating the probability of the rates lying within that range. Generally a monte carlo can be used.
posted by JD @ 4:20 PM
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