A range accrual is a structured product based on an underlying index whose returns are maximized if that index stays in the investor's defined range. ... If the index value falls within a specified range, the investor is credited the coupon rate, else the investor earns nothing.
In finance, a range accrual is a type of derivative product very popular among structured note investors. It is estimated that more than US$160 billion of Range Accrual indexed on interest rates only have been sold to investors between 2004 and 2007. It is one of the most popular non-vanilla financial derivatives. In essence the investor in a range accrual is "betting" that the reference "index" - usually interest rates or currency exchange rates - will stay within a predefined range.
A range accrual can be seen as a strip of binary options, with a decreasing lag between fixing date and payment date. For this reason, it is important the valuation model is well calibrated to the volatility term structure of the underlying, at least at the strikes implied by the range.
If furthermore the range accrual is callable, then the valuation model also needs to take into account the dynamic between the swaption and the underlying.
Accrual swaps that monitor permanence of interest rates into a range and pay a related interest rate times the permanence factor also depend on correlation across different adjacent forward rates. For the details see for example Brigo and Mercurio (2001).
What Is a Range Accrual?
A range accrual is a structured product based on an underlying index whose returns are maximized if that index stays in the investor's defined range. Commonly referred to as range accrual note, it is a type of financial derivative that offers investors the potential to earn above-average returns by linking its coupon rate to the performance of the reference index.
범위 어큐뮬레이션은 그 지수가 투자자의 정의된 범위에 머무르면 수익률이 극대화되는 기본 지수에 기초한 구조화된 상품이다. 보통 범위 적립식 채권으로 불리는, 그것은 투자자들에게 그것의 쿠폰 비율을 기준 지수의 실적과 연결시켜 평균 이상의 수익을 얻을 수 있는 가능성을 제공하는 금융 파생상품의 한 유형이다.