Underlying Definition

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In finance, the underlying of a derivative is an asset, a basket of assets, indexed, or even another derivative, for example, that the cash flows of (former) derivatives depend on the value of this base. There must be an independent way to observe this value to avoid conflicts of interest.
The price of the underlying is the main factor that determines the prices of derivative securities, warrants and convertible. Therefore, a change in the results is based on a simultaneous change in the price of the derivative that is linked to it. In most cases, the underlying is a security, such an action (in the case of options) or a commodity (in the case of the future).
1. In derivatives, the security that should be delivered when a derivative contract exercises as a put option or purchase option. For example, Euro-Bund options (OGBL) are traded on Eurex and its underlying is the Euro Bund futures contract (FGBL).

2. In stock, common stock to be delivered when a warrant is exercised, or when a convertible bond or preferred stock becomes convertible into common shares. For example, a stock option to purchase 100 shares of Nokia at EUR 50 in September 2006, the underlying is a Nokia share. In a futures contract to buy 10 million 10 year German government bonds, the underlying asset are the German government bonds.

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