underlying asset

Also found in: Dictionary, Thesaurus.
Related to underlying asset: strike price, Underlying instrument, Underlying Value

Underlying asset

The security or property or loan agreement that an option gives the option holder the right to buy or to sell.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Underlying Asset

In a derivative or warrant, the security, property, or other asset that gives value to the derivative or warrant. For example, in an option giving one the right to buy stock in Johnson and Johnson, the underlying asset is the stock in Johnson and Johnson. An underlying asset may many things, such as a physical commodity, a security, a piece of land, or part of a business.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

underlying asset

1. The physical and financial asset to which a security holder or a class of security holders has a claim. An analyst may believe that a stock is underpriced on the basis of the value of the firm's underlying assets and the potential earning power of those assets.
2. The asset that underlies and gives value to a security. The underlying asset of a stock option is the stock that the option can be used to purchase. Likewise, the underlying asset of a convertible bond is the stock for which the bond can be exchanged. The market value of a security is directly affected by changes in the value of any underlying asset into which it may be exchanged.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
You buy a CFD share that will increase in value as the underlying asset increases in price on the market.
In particular, compared to the constant long-term volatilities of underlying asset price and counterparty's asset value in Wang et al.
Threshold Theory is interested in decisions concerning two parameters of the underlying asset: the value of the underlying asset and its volatility.
Especially, recursive algorithm based on a forward induction procedure is developed to compute the risk-neutral probability of each different node for the underlying asset reaching a maximum or minimum price in the binomial tree.
The lessor in a long-term lease will report a lease receivable and a deferred inflow of resources (at an amount adjusted for any prepayments), while continuing to report the underlying asset as its own.
Identification of the underlying asset. A condition of validity of the contract is that the asset must be physical, exchangeable, clearly identified.
(i) Underlying asset price, St, satisfied the stochastic differential equations d[S.sub.t] = ([[mu].sub.t] - [q.sub.t]) [S.sub.t] dt + [sigma] [S.sub.t] d[B.sub.H] (t), (3) where [[mu].sub.t] is the expected return, [q.sub.t] denotes dividend yield, [sigma] is volatility, and [B.sub.H](t) is a fractional Brownian motion.
* Type B: A lease in which the lessee is not expected to consume more than an insignificant portion of the economic benefits embedded in the underlying asset over the lease term.
The writer of the option, however, has the obligation to sell the underlying asset if the buyer of the call option decides on exercising his right to buy.
Option contracts that give the buyer the right to buy an underlying asset are called "call options", whereas contracts which give the buyer the right to sell the underlying asset are called "put options".
Concerns were raised following Dubai World's property arm Nakheel's decision to use seabed as an underlying asset for its recent Islamic bond, or sukuk, to trade creditors.