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Derivatives

  Derivatives   |   Terms
  • 521
  • September 13, 2022
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RAN

It stands for range accrual note; a note that pays interest only if the floating interest rate (such as LIBOR) stays within a prespecified range. This instrument actually contains an embedded option which is sold by the note buyer to the issuing firm. The option allows the note buyer to gain extra yield over a bond. When volatility of interest rates, expected to be low, turns out to be really low, yields on bonds with an embedded option would be more than that of a regular bond, and therefore such a note would help the holder, taking a view on volatility, to make increase the bond yield.


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