Do you want BuboFlash to help you learning these things? Or do you want to add or correct something? Click here to log in or create user.


A derivative is a financial instrument that derives its performance from the performance of an underlying asset.

This definition, despite being so widely quoted, can nonetheless be a bit troublesome. For example, it can also describe mutual funds and exchange-traded funds, which would never be viewed as derivatives even though they derive their values from the values of the underlying securities they hold. Perhaps the distinction that best characterizes derivatives is that they usually transform the performance of the underlying asset before paying it out in the derivatives transaction. In contrast, with the exception of expense deductions, mutual funds and exchange-traded funds simply pass through the returns of their underlying securities. This transformation of performance is typically understood or implicit in references to derivatives but rarely makes its way into the formal definition. In keeping with customary industry practice, this characteristic will be retained as an implied, albeit critical, factor distinguishing derivatives from mutual funds and exchange-traded funds and some other straight pass-through instruments. Also, note that the idea that derivatives take their performance from an underlying asset encompasses the fact that derivatives take their value and certain other characteristics from the underlying asset. Derivatives strategies perform in ways that are derived from the underlying and the specific features of derivatives.

If you want to change selection, open original toplevel document below and click on "Move attachment"


statusnot read reprioritisations
last reprioritisation on suggested re-reading day
started reading on finished reading on



Do you want to join discussion? Click here to log in or create user.