Underlying Asset

Derivatives and securitisation are both built on underlying assets. In the case of derivatives, the price and value of a forward, future or option are based on the value of the equity, bond, commodity, index, ETF, cryptocurrency, or currency pair on which they are structured. In other words, the payout at expiry of an equity option is based on the performance of the appropriate equity. In the case of securitisation a.k.a. asset-backed securities, initial proceeds are predicated on underlying asset pools (receivables) such as residential mortgages, auto loans, commercial property, credit cards, student loans etc. Cash flows from the underlying assets are channeled to ABS investor.