A multi-asset derivative whose components don’t belong to the same asset class. In general, financial derivatives can be divided into basic derivatives and hybrid derivatives. A hybrid derivative results from combining a host contract with an embedded derivative:
Hybrid derivative = host contract + embedded derivative
For example, combining a bond (or a loan) and an option in the same instrument gives out a hybrid derivative. Principally, such a contract (such as swaps, options, futures, and forwards) would require no initial investment at the time of inception because the contract depends on the agreed future price. Hybrid derivatives typically consist of a basic financial component (zero coupon bonds) and a derivative component (call options, put options, etc).
Hybrid derivatives allow investors, speculators, and hedgers to take a view on combinations of asset classes. For example, a firm with multi-asset exposures can use hybrid derivatives as a hedging tool.
