




A derivative, or derivative security, is an asset whose price is based on the value of an underlying asset. A derivative can come in several forms such as options, futures, and swaps. An option contract is a derivative that gives the owner the right, but not the obligation, to buy or sell the underlying at a predetermined price. A futures contract is a derivative that commits a party either to buy or sell the underlying in the future at a certain price. A swap agreement is a derivate that commits the counterparties to exchange cash flows according to a prearranged formula. For example, an interest rate swap will specify cash flows to be paid as a function of some interest rate. The term derivative is generic and variations as well as entirely different derivative types are possible.
Rate this derivative definition...




Where is the market headed? The answer may surprise you. Find out with the exclusive & Barron's recommended charts of Chart of the Day. 

Popular Terms: irrevocable trust, minority interest, Zero Cost Collar, 144a, open position, EBITDA, 1035 exchange, annual return, FICO score, phantom income, in escrow, diluted share, deferred revenue, real GDP, deferred tax, current ratio, FTSE, 1031 exchange, dividends payable, margin rate, stock market close, limit order, VIX, retained earnings, per diem, debt service coverage, class C shares, stock split, average price per share, exdividend, command economy, exdividend date, reverse mortgage, liquidity ratio, option premium, risk management, quality assurance, 401a, required rate of return, cancelled check, implied volatility, covered put, LIBOR, Key Rate Duration, labor relations, whollyowned subsidiary, APR, balance sheet, inflation


 