Equity derivatives are contracts that derive value from the performance of an underlying entity. Which are examples?

• A. Futures, Options and Warrants
• B. Stocks and Bonds
• C. Mutual Funds
• D. Real Estate

Answer: (A)

Equity derivatives are contracts whose value depends on the price or performance of an underlying equity, such as a stock or stock index. Futures, options, and warrants all fit this idea because their value moves with the underlying equity’s price. A futures contract obligates a transaction at a future date based on the agreed price, an option gives the right but not the obligation to buy or sell at a set price, and a warrant is similar to an option but issued by the company itself and typically linked to its stock. In contrast, stocks and bonds are themselves traditional assets, mutual funds are collections of assets (not derivatives), and real estate is an asset class, not a contract whose value is derived from another asset. So the correct set of examples is futures, options, and warrants.