An equity product (equity-linked product) that involves an embedded feature of a derivative. It is a product that has an equity as underlying whose performance is measured to determine the outcome of its holding over a period of time, while featuring a certain derivative mechanism as to its price and or return.
Equity products are equity derivatives– that is derivatives whose underlying value is derived from or based on a stock of equity or a stock market index. Some equity derivatives increase in value when stock prices or index values rise; others increase in value when stock prices or index values fall.
Examples of equity derivative products include call options, put options, total return swaps (TRSs), prepaid equity forwards, variable prepaid forwards, accelerated share buy-backs, contingent prepaid forwards, call spreads, and so on.
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