A financial product that combines two products or more, or that combines a specific number of products with add-on features that change its risk-return profile. In other words, a hybrid product has the combined features of multiple distinct components such as equity, debt, derivative, insurance (protection), etc. A structured note is a hybrid financial product that combines a bond (or a note) with a derivative involving a specific underlying benchmark.

Another example is a hybrid derivative– that represents 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).