Derivative security


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Derivative security

A financial security such as an option or future whose value is derived in part from the value and characteristics of another security, the underlying asset.

Derivative Security

Futures, forwards, options, and other securities except for regular stocks and bonds. The value of nearly all derivatives are based on an underlying asset, whether that is a stock, bond, currency, index, or something else entirely. Derivative securities may be traded on an exchange or over-the-counter. Derivatives are often traded as speculative investments or to reduce the risk of one's other positions. Prominent derivative exchanges include the Chicago Mercantile Exchange and Euronext LIFFE.
References in periodicals archive ?
Since the derivative security is valued relative to its underlying asset, and can be replicated to form a risk-free hedge, it must have the same value in actual financial markets as in a risk-neutral world.
Since a financial market can only be as informationally efficient as the actual information it gets to process, if the information about the true price of the derivative security is misconstrued (perhaps due to an inadequate pricing model), the market cannot be expected to reconcile it just because it is operating at a certain level of informational efficiency.
Let W(t) = price of a derivative security at time t.
FFIEC should allow the institution to rebut this presumption if it can demonstrate that, when compared to total portfolio investments, the derivative security reduces total portfolio interest rate risk.
The Company is a recognized leader for trust services in a wide range of debt products, including mortgage-backed and asset-backed securities, corporate and municipal debt, derivative security services and international debt offerings.