case :
bank deposit : max term = 1 year
If you stay in for the full year you received euribor 1 year - 0.03% fixed at the start
If you get out after 3 months you received euribor 3 months - 0.15% fixed at the start
If you get out after 6 months you received euribor 6 months - 0.10% fixed at the start
If you get out after 9 months you received euribor 9 months - 0.08% fixed at the start
As you don't know in advance when you will exit (hence you don't know the final interest rate) , how to handle accruals?
Because, if I start accrueing at the lowest rate (3m euribor -0.15%) and we go further than 3 months, I don't want to reverse all monthly accruals (which have been underestimated).
What would be the best solution? Do I really need to decompose the product into a deposit for 12 months and create some kind of interest rate options which I would need to evaluate separately? I am not even sure that this would make sense. Is there no clever, yet simple way to handle this ?
Thanks,
Carl