Derivative, embedded derivative

According to IAS 39.10, a component of a compound (structured) financial instrument, also called a hybrid financial instrument and sometimes just a hybrid, – that also contains a non-derivative host contract (an insurance contract, lease, purchase contract or other financial instrument, such as debt or equity, that is combined with an embedded derivative to create a hybrid security), – with the result that a portion of the hybrid’s cash flows is subject to variability similar to that of a stand-alone derivative. – An embedded derivative changes some or all of the cash flows from a contract depending on a specified interest rate, financial instrument price, commodity price, foreign exchange rate, price or rate index, credit rating or other variable. – See derivative, derivatives, classification.

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