AskDefine | Define underlying

Dictionary Definition

underlying (See underlie)

Verb

1 be or form the base for
2 lie underneath [also: underlying, underlay, underlain]underlying adj
1 in the nature of something though not readily apparent; "shortcomings inherent in our approach"; "an underlying meaning" [syn: implicit in(p), inherent]
2 located beneath or below
3 being or involving basic facts or principles; "the fundamental laws of the universe"; "a fundamental incompatibility between them"; "these rudimentary truths"; "underlying principles" [syn: fundamental, rudimentary]

User Contributed Dictionary

English

Adjective

  1. lying underneath
    We dug down to the underlying rock.
  2. basic or fundamental
    Points and straight lines are underlying elements of geometry.
  3. implicit
    Many nursery rhymes have an underlying meaning.

Translations

lying underneath
basic or fundamental
implicit

Extensive Definition

In finance, the underlying of a derivative is an asset, basket of assets, index, or even another derivative, such that the cash flows of the (former) derivative depend on the value of this underlying. There must be an independent way to observe this value to avoid conflicts of interest.
For example, in a stock option to buy 100 shares of Nokia at EUR 50 in September 2006, the underlying is a Nokia share. In a futures contract to buy EUR 10 million 10 year German Government Bonds, the underlying are the German Government bonds. Other examples are stock market indexes such as the Dow Jones Industrial Average and Nikkei 225.
Fixed-income derivatives are an example of derivatives whose underlying is also a derivative. For example, Euro-Bund options (OGBL) are traded on Eurex and their underlying is the Euro-Bund futures contract (FGBL).
underlying in German: Basiswert
underlying in Italian: Strumento sottostante
underlying in French: Actif_sous-jacent
underlying in Russian: Базовый актив

Synonyms, Antonyms and Related Words

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