Fairmat Example

Accrual Swap

The "(Range) Accrual" clause is generally a form of interest accrual in which the coupon rate is only earned on days when it falls within a specified range. Payment of interest in the accrual swap occurs if the reference rate, such as Libor or Euribor, is above or below a certain level.

In this tutorial we show a simple (range) accrual swap in which the floating rate is conditional on how many days Euribor is within an agreed upon range during a set period. The main reason why a subject subscribes to this type of derivative is due to the attempt to obtain a lower fixed rate by assuming the risk that the Euribor rate will fall outside the agreed upon range.