1

derivative

noun de·riv·a·tive \ di-ˈri-və-tiv \
Updated on: 16 Nov 2017

Definition of derivative

1 linguistics :a word formed from another word or base :a word formed by derivation
  • "pointy," "pointed," and other derivatives of "point"
2 :something derived
  • … the sonata form (itself a derivative of opera) …
  • —Kingsley Martin
  • the name "Mia" is a derivative of "Maria"
3 mathematics :the limit of the ratio of the change in a function to the corresponding change in its independent variable as the latter change approaches zero
4 chemistry
a :a chemical substance related structurally to another substance and theoretically derivable from it
b :a substance that can be made from another substance
  • Petroleum is a derivative of coal tar.
  • soybean derivatives
5 :a contract or security (see security 3) that derives its value from that of an underlying asset (such as another security) or from the value of a rate (as of interest or currency exchange) or index (see 1index 2d) of asset value (such as a stock index)

Examples of derivative in a Sentence

  1. The word “childish” is a derivative of “child.”

  2. Tofu is one of many soybean derivatives.

  3. Petroleum is a derivative of coal tar.

Recent Examples of derivative from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'derivative.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

Origin and Etymology of derivative

see derive


2

derivative

adjective

Definition of derivative

1 linguistics :formed from another word or base :formed by derivation
  • a derivative word
2 :having parts that originate from another source :made up of or marked by derived elements
  • a derivative philosophy
3 :lacking originality :banal
  • a derivative performance
  • a film using a derivative plot device

derivatively

adverb

derivativeness

noun

Examples of derivative in a Sentence

  1. A number of critics found the film derivative and predictable.

  2. His style seems too derivative of Hemingway.

Recent Examples of derivative from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'derivative.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

Origin and Etymology of derivative

see derive

derivative Synonyms

Synonyms
secondary, secondhand
Antonyms
basic, original
Related Words
unoriginal; consequent, resultant
Near Antonyms
fundamental, nonderivative; first, primary

Financial Definition of DERIVATIVE

derivative

What It Is

A derivative is a financial contract with a value that is derived from an underlying asset. Derivatives have no direct value in and of themselves -- their value is based on the expected future price movements of their underlying asset.

How It Works

Derivatives are often used as an instrument to hedge risk for one party of a contract, while offering the potential for high returns for the other party. Derivatives have been created to mitigate a remarkable number of risks: fluctuations in stock, bond, commodity, and index prices; changes in foreign exchange rates; changes in interest rates; and weather events, to name a few.

One of the most commonly used derivatives is the option. Let's look at an example:

Say Company XYZ is involved in the production of pre-packaged foods. They are a large consumer of flour and other commodities, which are subject to volatile price movements.

In order for the company to assure any kind of consistency with their product and meet their bottom-line objectives, they need to be able to purchase commodities at a predictable and market-friendly rate.  In order to do this, company XYZ would enter into an options contract with farmers or wheat producers to buy a certain amount of their crop at a certain price during an agreed upon period of time. If the price of wheat, for whatever reason, goes above the threshold, then Company XYZ can exercise the option and purchase the asset at the strike price. Company XYZ pays a premium for this privilege, but receives protection in return for one of their most important input costs. If XYZ decides not to exercise its option, the producer is free to sell the asset at market value to any buyer. In the end, the partnership acts as a win-win for both parties: Company XYZ is guaranteed a competitive price for the commodity, while the producer is assured of a fair value for its goods.

In this example, the value of the option is "derived" from an underlying asset; in this case, a certain number of bushels of wheat.

Other common derivatives include futures, forwards and swaps.

Why It Matters

As often is the case in trading, the more risk you undertake the more reward you stand to gain. Derivatives can be used on both sides of the equation, to either reduce risk or assume risk with the possibility of a commensurate reward.

This is where derivatives have received such notoriety as of late: in the dark art of speculating through derivatives. Speculators who enter into a derivative contract are essentially betting that the future price of the asset will be substantially different from the expected price held by the other member of the contract. They operate under the assumption that the party seeking insurance has it wrong in regard to the future market price, and look to profit from the error.

Contrary to popular opinion, though, derivatives are not inherently bad. In fact, they are a necessity for many companies to ensure profits in volatile markets or provide mitigated risk for everyday investors looking for investment insurance.


DERIVATIVE Defined for English Language Learners

derivative

noun

Definition of derivative for English Language Learners

  • : a word formed from another word

  • : something that comes from something else : a substance that is made from another substance


derivative

adjective

Definition of derivative for English Language Learners

  • : made up of parts from something else : not new or original

  • : formed from another word


DERIVATIVE Defined for Kids

1

derivative

noun de·riv·a·tive \ di-ˈri-və-tiv \

Definition of derivative for Students

1 :a word formed from an earlier word or root
  • The word “Childhood” is a derivative of “child.”
2 :something that is formed from something else
  • Gasoline is a derivative of petroleum.

2

derivative

adjective

Definition of derivative for Students

:formed from something else
  • a derivative product

derivatively

adverb

Medical Dictionary

1

derivative

adjective de·riv·a·tive \ di-ˈriv-ət-iv \

medical Definition of derivative

1 :formed by derivation
2 :made up of or marked by derived elements

2

derivative

noun

medical Definition of derivative

1 :something that is obtained from, grows out of, or results from an earlier or more fundamental state or condition
2 a :a chemical substance related structurally to another substance and theoretically derivable from it
b :a substance that can be made from another substance

Law Dictionary

1

derivative

noun de·riv·a·tive \ də-ˈri-və-tiv \

legal Definition of derivative

:a contract or security that derives its value from that of an underlying asset (as another security) or from the value of a rate (as of interest or currency exchange) or index of asset value (as a stock index)
Note: Derivatives often take the form of customized contracts transacted outside of security exchanges, while other contracts, such as standard index options and futures, are openly traded on such exchanges. Derivatives often involve a forward contract.

2

derivative

adjective

legal Definition of derivative

1 :arising out of or dependent on the existence of something else — compare direct
2 :of, relating to, or being a derivative
  • a derivative transaction

derivatively

adverb


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