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FINANCIAL MARKET COURSES

Range Accrual Structures

The structured note market is noted for its ability to develop new and innovative structures as it strives to meet the requirements of diverse groups of investors and issuers around the world. Range accrual structures originally emerged in 1993 and subsequently became a popular method of trying to obtain cheap funding relative to some underlying interest rate. As well as allowing borrowers to attain highly attractive below-market funding, these instruments also rewarded investors as long as interest rates remained low.

 

This course looks at range accrual structures in detail, examining their features and characteristics and showing how to price these instruments.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Define a range accrual structure and differentiate it from other structured notes

    Outline the main features and characteristics of range accrual structures

    Price a range accrual structure

  • COURSE OUTLINE

    Topic 1: Introduction to Range Accrual Structures

    What are Range Accrual Structures?

    Why use Range Accrual Structures?

    Trading Environment for Range Accrual Structures

    Investor View of Range Accrual Structures

    Callable Range Notes

    Topic 2: Pricing Considerations for Average Rate Options

    Range Accrual Notes – Structuring Process

    Interest Rate Environment

    o Forward Rates

    Digital Option Structure

    o Digital Cap Structure

    Breakeven Analysis

    o Cap Breakeven Level

    o Floor Breakeven Level

    Volatility Analysis

    o Estimating Future Rates

    o Cap Breakeven Analysis

    o Floor Breakeven Analysis

    Topic 3: Valuation of Range Accrual Structures

    Range Accrual Structure – Valuation Process

    Valuing Daily Digital Caps

    Valuing Daily Digital Floors

    Converting Option Value to Spread Payments

    Valuing Daily Digital Options – Quick Method

    Sensitivity Analysis

    o Parallel Shift Sensitivity

    o Factor Sensitivity

    o Volatility Sensitivity

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    90 Minutes

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