To determine the value of a derivative, it is also necessary to assign subjective probabilities to the possible payoffs, to discount future payoffs back to present values, and to take into account risks which cannot be diversified. This can be accomplished through the use of risk-neutral probabilities. This problem can be turned around. The market prices of derivatives can be assumed to be their values, which can then be used to infer the risk-neutral probabilities that determine these values. Many assets underlie derivatives, including commodities, common stocks and stock market indexes, fixed income securities and foreign currencies.
Derivatives are ubiquitous.
Insurance and exchange-traded futures and options are perhaps most obviously derivatives. In addition to the more obvious corporate securities such as warrants and employee stock options, corporate equities and debt securities can be fruitfully interpreted as derivatives. Real assets such as natural resources and corporate plant and equipment can also be viewed as derivatives. Even marriage and suicide can have a derivatives interpretation. These differ in their method of order execution, in their arrangements for guaranteeing that contracts will be honored, and in other regulations.