A derivative contract that is not typically backed by an underlying financial asset, physical commodity, index performance, index volatility, etc. Instead, it is based on the likelihood of a particular event taking place or a particular trading outcome. Such events may include anything from politics to sports in unregulated venues (e.g., election politics: a given presidential hopeful winning the presidency, etc).
The derivative pays off only if the specified event occurs. The price of an event derivative is a reflection of the market’s assessment of the probability that the event will happen.
