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Derivatives




Wedding Band Swap


An interest rate swap which relatively limits payment on its floating-rate leg if an index or reference rate remains within a pre-specified range over its designated observation window. The floating rate will increase if the index rate reaches or exceeds the boundaries of the range during the observation window. Increment of the floating rate usually follows a leverage factor to be set in application to the next reset period or until the swap’s expiration date.

In a different context, it could also refer to a type of corridor swap in which one counterparty must make “binary” interest payments to the other counterparty if a reference rate, such as LIBOR, derails outside the specified range at the settlement date.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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