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.
In addition, as a leveraged product - you're required to place an initial deposit which makes up only a small fraction of the underlying instruments value.
analysis of current holdings and intended purchases in 2008 by product type, primary underlying instrument of investment, specific geography of investment, specific business sector of investment and style of investment;
A deeper analysis follows in which the author examines how the value of a bet is dependant on the passing of time, the volatility of the underlying instrument plus the price of the underlying instrument.
Variance futures measure the difference between the expected and actual variance of an underlying instrument over a fixed time period.
Its low margin feature means you only pay a small percentage of the underlying instrument as your initial deposit; making it easier for the 'average Joe' like you and me to start trading the financial markets when we have little capital - in comparison - to play with.
Spread betting, as an alternative to more traditional forms of trading, is easy-to-access due to its low margin feature requiring only a small percentage of the underlying instrument as a deposit.
Speculators can take advantage of underlying instrument price movements without having to take possession of the underlying and portfolio managers can hedge their portfolios without having to liquidate their holdings.
As ETF strategists, the investment team has a thorough understanding of the underlying instruments, which enables better asset allocation decisions and risk controls.
08 improving the quality of services in the ministry of labour and social policy with funds from the operational programme human resources development 2007-2013 with subject prepress, design and printing of the data dictionary for consultations on the typical questions, interested consumers, policies portfolios minister of labour and social policy contained underlying instruments and rules for their application.
Short-selling bans hurt liquidity in the underlying instruments, especially because they typically come at a time of market distress - when liquidity is already challenged.
Commodity and currency futures prices are tightly linked to the prices of their underlying instruments, with futures prices highly sensitive to price movements of the underlying.