Underliers

An underlier is a financial instrument whose value is derived from the performance of another instrument, known as the overlier. The term is commonly used in the context of derivatives and options trading. Underliers are typically underlying assets or indices that the derivative is based on. For example, in the case of an options contract, the underlier is the asset or index on which the option is written. The value of the derivative is directly influenced by the performance of the underlier. Changes in the underlier's price or value will affect the derivative's value, making the underlier a critical factor in the pricing and risk management of derivatives. Understanding the relationship between underliers and overlies is essential for traders and investors to effectively navigate the financial markets and manage their positions.