Synthetics

Definition:

Customized hybrid instruments created by blending an underlying price on a cash instrument with the price of a derivative instrument. It is a combination of security holdings that mimics the price movement of another single security (i.e., synthetic call: long position in a stock combined with a put on that position; a protected long sale; synthetic put: short position in a stock combined with a call on that position; a protected short sale).

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Quality option

Gives the seller choice of deliverables in Treasury bond and Treasury note futures contracts. Also called the swap option. Related: Cheapest to deliver issue.

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