BizTerm Definition
Building Blocks
Full Definition

Building blocks in financial engineering are the basic components which are combined to make a financial instrument. Many derivative products are constructed from a basket of simpler financial instruments. Examples of such building blocks include forward rate agreements, swaps, futures, caps, etc. The number of such building blocks increases monthly as previously new derivative instruments become more widely used and understood. When this occurs the derivative product may itself become a building block for a newer financial product (such as a hybrid or synthetic instrument).

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