




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


 