




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


 