Hedging Loans Exposure

E.g. Range accrual notes are complex instruments that are valued and adjusted in a similar manner to American style options.  This is typically used by large institutions, as a hedge of another position. No official market exists for range accrual notes or valuation.

 

GB Pays3m USD Libor* (n/N), Q, A/360
GB RecLibor - 0.50%, Q, A/360
n Number of days where 3m Libor fixes inside the range during the accrual period 
NTotal number of days in the accrual period
Range3.75% - 6.25%
Maturity3 Years

 

This Range accrual is used as a liability hedge.  Client pays 3m USD libor –0.50% and receives 3m USD Libor for 3 years as long as 3m libor trades with the ranges 3.75% - 6.25%.

Description

  • Tailor made solutions to hedge a customer’s liability.