Underlying instrument


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Related to Underlying instrument: Financial derivatives

Underlying Instrument

A security, commodity, or other asset described in a derivative contact. For example, in an option contract giving the holder the right to buy so many shares of AT&T, the underlying instrument is stock in AT&T. Likewise, in a futures contract on so many barrels of refined oil, the underlying instrument is refined oil.

Underlying instrument.

An underlying instrument is a security, such as a stock, a commodity, or other type of financial product, such as a stock index, whose value determines the value of a derivative investment or product.

For example, if you own a stock option, the stock you have the right to buy or sell according to the terms of that option is the option's underlying instrument.

Underlying instruments may also be called underlying products, underlying interest, or sometimes the underlying investment.

References in periodicals archive ?
While it focused on the valuation of a financial option, Black and Scholes (1973) also discuss using this methodology on real assets as the underlying instrument.
Market Analysis: including the identification and analysis of consumers classifiable as retail investors in the UK as well as comprehensive data for current ownership and intended purchases in 2008 by type of security-based investment, primary underlying instrument in which funds are invested, specific geography in which funds are invested, specific business sector in which funds are invested, and investment style used to manage funds.
The opening section depicted the eerie stillness of that little town of Bethlehem with the underlying instruments creating the astonishing texture of bells ringing far in the distance.
Additionally, treasurers want to "look under the hood" of money-market mutual funds to see the underlying instruments and understand what the funds are invested in.
Fee cuts, transparency, revealing the underlying instruments without giving away the 'secret formula' to copycats, due diligence, redemptions and selling pressures, less restrictions on investors and getting in new money are all topics that might change the face of the industry as we know it today, which might find itself adopting a new model.
It covered underlying instruments involved in the international financial markets, the processes for efficient settlements and related basic financial calculations.
By connecting companies and events in news stories quickly and accurately with the underlying instruments, we can provide a direct link between news and other financial information.
Unlike many direct investors, portfolio investors often have relatively near-term horizons--that is, the future that concerns them is a relatively brief period of time--regardless of the maturity of the underlying instruments.
Commission staff, she said, is assessing the adequacy of "investor disclosure, liquidity levels and transparency of underlying instruments in which ETPs invest, fair valuations, efficiency in the arbitrage process and the relationship between market volatility and ETPs.
If the underlying instruments are government bonds, your money is safe, but if these are, say, a bond issued by a real estate firm, then the guarantee is as good as the firm's credit.
Market risk would be assessed on a portfolio basis, taking into account the cash flows associated with both derivatives and the underlying instruments.
When asked to define the biggest challenges they face in allocating to their tail risk protection strategy, 64 percent of investors indicated liquidity of the underlying instruments.