Something physical or tangible that may be referenced by a contract or trade
Detail
Financial derivatives are completely cash-based and usually have no physical underliers
Energy derivatives usually have at least one physical underlier, which may be a commodity,
e.g. coal
or a something related to a commodity
e.g. storage
The underlier acts as a bridge to the physical world - and usually as a set of reference prices for price-setting and valuation
We need to emphasize that nearly all energy trades have at least one physical underlier - few of them actually involve the delivery of energy commodities
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