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Think about issuing digital coupon dual ccy notes below.

Notional ccy: USD Tenor: 10yr Coupon: if eurusd > certain level, 6% otherwise 0%, SA Redemption: if eurusd > certain level2, usd 100%. otherwise notional * eurusd / initial eurusd in eur.

If we change high cpn to 6.01%, change in value of notes is

  1. less than 10bp? or
  2. more than 10bp?

My instinct says less than 10bp, as cmpared to fixed cpn impact on value is small and redemption value is not affecved by cpn. Am I right?

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    $\begingroup$ Have you tried approaches other than your instinct? $\endgroup$ Oct 4, 2023 at 23:47

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