Define the Term “Underlying Asset” in a Derivatives Contract.
The underlying asset is the specific financial instrument, commodity, currency, or index on which a derivative contract's value is based. In the context of Bitcoin futures, the underlying asset is Bitcoin itself.
The price movements of the derivative are directly tied to the price movements of this underlying asset.
Glossar
Underlying Asset
Foundation ⎊ The concept of an Underlying Asset, within cryptocurrency derivatives and financial markets, establishes the core reference point for valuation and risk transfer.
Bitcoin
Architecture ⎊ Bitcoin, within a cryptocurrency context, represents a decentralized, peer-to-peer electronic cash system predicated on cryptographic proof rather than requiring a trusted third party.
Volatility
Measurement ⎊ Volatility, in quantitative finance, is the statistical measurement of the dispersion of returns for a given financial asset, typically quantified by the annualized standard deviation of its price movements.
Price Movements
Momentum ⎊ Within cryptocurrency derivatives and options, momentum describes the rate of change in price, reflecting investor conviction and potential for sustained directional movement.
Index
Benchmark ⎊ An index serves as a statistical measure representing the performance of a specific market segment or asset class.