An accrual swap in which interest starts accruing on the fixed leg when the floating reference rate enters into (or becomes in) a certain range (corridor). Though it must be pre-determined, the width of the range may not necessarily be fixed once and for all. That is, it may reset at the beginning of each payment period, increasing or decreasing in tandem with reference spot or forward prices or rates. The range accrual swap is used by investors who expect rates to remain stable into a corridor and here they prefer to receive the fixed leg, or, on the contrary, who anticipate that a high volatility would affect rates and as such they prefer to pay the fixed leg. It is also referred to as a corridor accrual swap.
Derivatives
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