Hybrid Instrument

Business, Legal & Accounting Glossary

Definition: Hybrid Instrument


Quick Summary of Hybrid Instrument


A financial instrument that blend characteristics of debt and equity markets.




Full Definition of Hybrid Instrument


The term hybrid instrument is not precisely defined. Generally, it is used to refer to financial instruments that blend characteristics of debt and equity markets. Convertible bonds are an example. They are debt instruments that have an embedded option allowing the holder to exchange them for shares of the issuing corporation’s stock. For this reason, their market prices tend to be influenced by both interest rates as well as the issuer’s stock price. Another example would be a structured note linked to some equity index. These take many forms. Typical would be a five-year note. It is a debt instrument issued by a corporation or sovereign, but instead of paying interest, it returns the greater of

  • principal plus the price appreciation on the S&P 500 over the life of the instrument, or
  • principal.

Other examples of hybrids are preferred stock, trust preferred securities (TruPS) or equity default swaps (EDS).

Some people extend the definition of a hybrid instrument to encompass instruments that straddle other market sectors. According to this definition, a quanto option or a volatility future would be considered a hybrid.

You may hear people speaking of “hybrid securities,” “hybrid products” or simply “hybrids.” All are synonyms for “hybrid instruments.”


Synonyms For Hybrid Instrument


hybrid securities, hybrid products, hybrid security, hybrid product, hybrids

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Definition Sources


Definitions for Hybrid Instrument are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 17th April, 2020 | 326 Views.