Definition for : Derivative

Derivative is a financial instrument, the price of which is directly dependent upon (i.e. "derived from") the Value of one or more underlying securities, Equity indices, commodities, other derivative instruments, or any agreed upon pricing index or arrangement. Derivatives are used to hedge (see Hedging) Risk, by transferring it to those willing to assume it. Derivatives cannot eliminate Risk. Major classes of derivatives are: forward transactions, swaps, futures, options.
(See Chapter 49 Managing cash flows of the Vernimmen)
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