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Digital Range


A note that pays a coupon at a preset fixed interest rate, with the actual amount of the coupon depending on the number of days which the reference rate spends within a given range/ corridor. Digital ranges would be instrumental to investors who expect the reference rate to stay within the range formed by the upper and lower levels.

The payoff of a digital range is equal to that of a long position in a digital call option with a strike set equivalent to the lower level and a short position in a digital call option with a strike set equivalent to the upper level. However, these two digital options differ from vanilla digital options in that they do not pay off on the exercise date but only at a time (every single day) on which interest accrues and over the lifespan of the note.

It is also known as a corridor note.


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