Synthetic

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DEFINITION of 'Synthetic'

A financial instrument that is created artificially by simulating another instrument with the combined features of a collection of other assets.

INVESTOPEDIA EXPLAINS 'Synthetic'

For example, you can create a synthetic stock by purchasing a call option and simultaneously selling a put option on the same stock. The synthetic stock would have the same capital-gain potential as the underlying security.

RELATED TERMS
  1. Synthetic Lease

    An operating lease that is structured in a way so that it is ...
  2. Bifurcation

    The splitting of a larger whole or main body into two smaller ...
  3. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  4. Constant Proportion Debt Obligation ...

    A type of synthetic collateralized debt instrument that is backed ...
  5. Underlying

    1. In derivatives, the security that must be delivered when a ...
  6. Put

    An option contract giving the owner the right, but not the obligation, ...
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