



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


 