underlier

Underlier is the asset, instrument, or data series that forms the basis of a derivative's payoff. The underlier may be an equity security, a commodity, a currency, an interest rate, an index, a credit reference, or a basket of assets. In most contexts the term "underlying" is more common, but "underlier" appears in some contracts, risk models, and quantitative libraries to denote the single asset or factor that a derivative depends on.

In practice, the underlier determines the derivative’s price dynamics and risk exposures. For example, a call option on Company A stock has Company A stock as its underlier; a crude oil futures contract has crude oil as its underlier; a credit default swap references the underlier as the credit risk of a borrower or reference obligation. In complex structured products, multiple underliers may be involved, and the payoff may depend on the performance of each underlier or on a weighted combination.

In pricing and risk management, the behavior of the underlier’s price or value drives model inputs such as volatility, correlations, and interest rates. Some models track the underlier path over time, particularly for path-dependent derivatives or for stress testing.

See also: underlying asset, derivative, option, futures, swap, structured product.