Equity derivatives are financial derivative products whose value is dependent on the value of an underlying share or group of shares. They fall into three broad classes: In finance, a derivative security is a contract that specifies the rights and obligations between the issuer of the security and the holder to receive or deliver future cash flows (or exchange of other securities or assets) based on some future event. ... See stock (disambiguation) for other meanings of the term stock A stock, also referred to as a share, is commonly a share of ownership in a corporation. ...

Single stock derivatives

These include

• Stock options
• CFDs
• Single equity swaps

A stock option is a specific type of option with a stock as the underlying instrument (the security that the value of the option is based on). ... CFDs or Contracts For Difference are a leveraged equity derivative security that allow users to speculate on share price movements, without the need for ownership of the underlying shares. ... In finance, a swap is a financial instrument--a kind of derivative security. ...

Equity index derivatives

These include

• Listed futures and options on different local or global equity indices
• Over the counter (OTC) forwards and options

Equity index futures and options tend to be in liquid markets for close to delivery contracts. They trade for cash delivery, usually based on a multiple of the underlying index on which they are defined (for example £10 per index point). See separate articles for over-the-counter trading and the medical condition Ornithine Transcarbamylase Deficiency. ...

OTC products are usually for longer maturities, and are usually a form of options product. For example, the right but not the obligation to cash delivery based on the difference between the designated strike price, and the value of the designated index at maturity. These are traded in the wholesale market, but are often used as the basis of guaranteed equity products, which offer retail buyers a participation if the equity index rises over time, but which provides guaranteed return of capital if the index falls. Sometimes these products can take the form of exotic options (for example Asian options or Quanto options). The strike price, or exercise price, is a key variable in a derivatives contract between two parties. ... In petroleum geology, the maturity of a rock is a measure of its state in terms of hydrocarbon generation. ... In finance, an exotic option is a derivative security which has features making it more complex than commonly traded products (vanilla options). ... The style or family of a financial option is a general term denoting the class into which the option falls, usually defined by the manner in which the option may be exercised. ...

Forward prices of equity indices are calculated by computing the cost of carry of holding a long position in the consitutuent parts of the index. This will typically be

• the risk free interest rate, since the cost of investing in the equity market is the loss of interest
• minus the imputed dividend yield on the index, since an equity investor receives the sum of the dividends on the component stocks. Since these occur at different times, and are difficult to predict, estimation of the forward price is something of an art, particularly if there are not many stocks in the chosen index.

Indices for futures are the well-established ones, such as S&P, FTSE, DAX, CAC40 and other G12 country indices. Indices for OTC products are broadly similar, but offer more flexibility. The risk-free interest rate is the interest rate that it is assumed can be obtained by investing in financial instruments with no risk. ... The dividend yield on a company stock is the companys annual dividend payments divided by its market cap, or the dividend per share divided by the price per share. ... The G12 or Group of Twelve is a group of industrially-advanced countries whose central banks co-operate to regulate international finance. ...

Equity basket derivatives

These are options, futures or swaps where the underlying is a non-index basket of shares. They have similar characteristics to equity index derivatives, but are always traded OTC, as the basket definition is not standardised in the way that an equity index is.