What are derivatives?

Question

What are derivatives?

Answer 1

generally a derivative is an financial instrument based on another security.  it is not the underlying asset, and is calculated based on that other underlying investment.  

for example, a futures or options contract, swap etc are al based on probabilities of another (usually physical) asset like a stock, bond, commodity, loan.    

it is kind of like a bet on what happens to a real asset, but people and companies also use them to hedge their risk positions.  

theoretical mathematical models are made based on the definition / "rules" of whoever made up the derivative.  some catch on and some don't based on the need.

Answer 2

A derivative is a contract or security that derives its value from that of an underlying asset (as another security) or from the value of a rate (as of interest or currency exchange) or index of asset value (as a stock index).Derivatives often take the form of customized contracts transacted outside of security exchanges, while other contracts, such as standard index options and futures, are openly traded on such exchanges. Derivatives often involve a forward contract. In short, a  derivative is a  a security in the form of a written agreement setting out a specific value based upon something else. we know we have to know three things to understand a derivative:

   1. We must know the agreement or contract and what it specifies.  This is the WHAT component.

   2. We must know the underlying “something else” which defines the value. This is the HOW component of a derivative (It tells’ you HOW to calculate the price).

   3. We must know how long this agreement is valid for (since by definition all contracts end eventually.  If they didn’t we wouldn’t need a contract in the first place!) This is the WHEN component of a derivative.

A good article to read is this one: "A beginner's guide to derivatives:http://www.moneyweek.com/file/19131/a-be...

Answer 3

Derivatives are financial contracts whose value/price is dependent on the behaviour of the price of one or more basic underlying assets (often simply known as the underlying). These contracts are legally binding agreements, made on the trading screen of stock exchanges, to buy or sell an asset in future. The asset can be a share, index, interest rate, bond, rupee dollar exchange rate, sugar, crude

oil, soybean, cotton, coffee and what have you.

A very simple example of derivatives is curd, which is derivative of milk. The price of curd depends upon the price of milk which in turn depends upon the demand and supply of milk.

Answer 4

a change in something.

Answer 5

A derivative is something that changes when influenced by something else (usually another change).

Like for example, gas prices change due to the economic problems and many other reasons. The derivative in this situation is the gas price, and the variable (something that can be changed) is the economic problems.

Economic Change = Gas Price Change = Economy Lapse

See? Even more derivatives can be found in any situation. It's kind of like testing results to get different answers.

This is usually used in calculus and mathamatics, science and experiments, or stocks and investing.

Answer 6

On a graphing plane the derivative is the slope of a line.

so a line y = mx + b

y = 4x + 2

y' = 4x' + 2x^0'

y' = 4+ 0

y' = 4

The slope of the line which is m = 4 which is y' of y = 4x + 2

Answer 7

A financial product that derives its value from a different asset / security.

Not Voodoo - just abused, misunderstood, under regulated, etc.

Problem is - some are not easily traded [no maket] - so the price / asset value from an accounting POV is problematic.

Also, can be used for financial report engineering / tax avoidance and a host of other "fun" stuff.

Bottom line - our accounting standards under FSB - are no place close to keeping up with accounting for new fin products

Answer 8

results of combining.

Answer 9

Oh stay away from those.