A corridor floater – also known as a range note, fairway note or accrual note – is a structured note paying an above-market rate for each day the underlying spot rate stays within a specified range (the accrual corridor). This higher yield is achieved by effectively selling an embedded corridor option. The corridor may be reset on given dates, either by the buyer or according to the prevailing value of the reference rate.
If the underlying trades outside the corridor, the investor receives no interest for that day. Alternatively, the instrument may be knocked out altogether – this is a barrier floater or knock-out range note. The holder will therefore benefit in stable market periods when volatility is low and the underlying is more likely to stay within the corridor.
Commodity trading and risk management is a subject that is necessarily complicated, and is becoming more so. The Energy Risk Glossary seeks to disentangle and clarify the jargon by providing definitions of commonly used energy and commodity market terms.
These include definitions related to a variety of underlying energy products, as well as technical terms about the many instruments and benchmarks used by energy market participants.
Many of the most recent terms to have been added to our glossary stem from the actions of regulators since the 2008 global financial crisis. The onset of rules, such as the US Dodd-Frank Act and European Market Infrastructure Regulation, has markedly increased the cost and complexity associated with commodity trading. Perhaps they have also increased the need for a handy reference guide such as this.
The glossary is extensively cross-referenced, making for easy and thorough searches. We hope you find the latest edition of the Energy Risk Glossary to be a useful resource.
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