Merrill Lynch has started offering credit derivatives with range accrual payouts. The options' coupon is dependent on the number of days that the credit-default swap spread stays within a pre-determined range, according to Ed Selby, credit options trader in London.
Selby said it has started offering the product because there are now around 20 credits in Europe, which are liquid enough to quote options on and delta hedge.
The instruments are aimed at investors who think spreads will remain rangebound and are looking to earn premium, noted Selby. The typical maturity is three years.
