Range accrual notes

These notes accrue interest daily at an enhanced yield, provided that a particular market rate falls within a specified range. For example, when the 1-year yield on vanilla instruments is 4%, a dollar-denominated, 1-year range accrual note might accrue interest at 6% p.a. on every day that 3-month EURIBOR fixes in the range 2.5% to 3.5%, otherwise it accrues nothing that day. 

Range accrual notes can be based on almost any qnoted market rate. In this example, the return on a dollar-denominated instrnment is linked to European short-term interest rates, but it could also be linked to exchange rates, stock or commodity prices. In most cases they are structured using strips of digital options. 

---