Derivative Security Derivative Security -A financial contract whose value derives in part from the value and characteristics of one or more underlying assets(e. g, securities, commodities),interest rates, exchange rates or indices Straight debt or equity cannot be exchanged for another asset, but options are exchangeable. An option is part of the broader category of derivative securities We examine the convertible security, exchangeable bond, and warrant in this chapter. 22-322-3 Derivative Security -- A financial contract whose value derives in part from the value and characteristics of one or more underlying assets (e.g., securities, commodities), interest rates, exchange rates, or indices. Derivative Security Straight debt or equity cannot be exchanged for another asset, but options are exchangeable. An option is part of the broader category of derivative securities. We examine the convertible security, exchangeable bond, and warrant in this chapter