An underlying asset is a type of real or financial asset that is traded on the market. It is used as a reference value for derivative financial product contracts. The quotation In the underlying asset market, it therefore serves as the basis for establishing the value of certain derivative financial products.
Types of Underlying Assets
The underlying assets can be classified as financial and non-financial.
Non-financial Underlying Assets
Non-financial underlying assets include certain agricultural products, metals, livestock, and materials. Like gold, silver, or oil and gas, or wheat and corn.
Financial Underlying Assets
Depending on the market and the type of derivative instrument, we find that there is a great variety of underlying financial assets.
- Currency options: those contracts that take as their underlying asset the exchange rate of a strong currency.
- Options on fixed income assets: contracts that take as underlying asset the main bonds of the main countries.
- Stock options: in this case, the shares of a company are taken as the underlying asset.
- Options on goods: in which a product is taken as an underlying asset. The main ones are agricultural products and metals
- Options on futures: those contracts in which the underlying asset is another derivative instrument, futures, that follow the evolution of an underlying asset that is not a currency, bond, commodity or index.
Derivative financial products that work with Underlying Assets
The main derivatives that take an underlying asset as a reference are the following.
- Metals: gold, silver, copper, zinc.
- Raw materials: mainly gas and oil.
- Cattle: calves, chickens, pigs.
- Interest rates
- Shares: Google, Repsol, Banco Santander.
- Índices: IBEX 35, FTSE, DOW JONES.
- Agricultural products: coffee, cocoa, wheat, corn.