Glossary
Underlying
The object for trade that underlies a derivative. Underlyings can be goods or financial instruments (shares, bonds, currencies, indices, etc.). The underlying for a share warrant, for example, is the corresponding share; for a DAX Future, the underlying is the DAX itself; for a commodities certificate, it is the commodity.
Some underlying instruments, such as commodities, shares, bonds, or currencies, can be physically delivered, while others - so-called notional underlying instruments - cannot. Notional underlying instruments are standardised and assigned certain attributes so that they can serve as benchmarks. For example, the Bund future is a contract on a notional instrument which represents a classic Federal Government Bond, with an interest rate of six percent and a maturity of ten years. Indices are another type of notional underlying instrument. An option on the DAX is a contract on the stock portfolio which represents the DAX shares with their relative weightings.
Our glossary explains important financial terms and should not leave any questions unanswered. However, if you are missing a definition, please write to us at redaktion@deutsche-boerse.com. We will then include the term if possible.
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