Underlying asset

In relation to options, the underlying asset, or the underlying, is the asset which the option holder has the right to require the option writer deal in (at the strike price specified in the option).

In relation to derivative instruments more generally, the underlying asset is the asset from which the cashflows, price and value of the derivative instrument are derived.

Sometimes known as the Physical.

See also

• Binomial option pricing model
• Delta hedging
• Derivative instrument
• Exotic option
• Option
• Strike price
• Underlying
• Underlying currency
• Volatility