Risk glossary

 

Corridor option

The holder of a corridor option receives a coupon at maturity, the magnitude of which depends on the behaviour of a specified spot rate during the lifetime of the corridor. For each day on which the spot rate (typically an official fixing rate) remains within the chosen spot range (the accrual corridor), the holder accrues one day’s worth of coupon interest. A variation is the knock-out corridor option. In this structure, the holder ceases to accrue coupon interest as soon as the spot rate leaves the range. Even if the spot rate subsequently re-enters the range, the holder does not continue to accrue coupon interest.
A wall option is a special type of corridor option, where the accrual corridor is one-sided. Another relative is the range binary, a digital option that pays a fixed-coupon amount if the rate stays within the range, but pays nothing if the range is breached.

* see alsorange binary; trigger condition

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