What is the definition of a derivative in finance?

A derivative in finance is defined as a financial instrument whose value is derived from the value of an underlying asset. This means that the derivative's price fluctuations are closely linked to the performance of another asset, which could be a stock, bond, commodity, currency, or any other financial asset. The key characteristic of derivatives is that they are contingent upon the movements of these underlying assets, allowing for various strategies, including hedging against risks or speculating on price movements.

In contrast, the other answers describe financial products that do not capture the essence of derivatives. For example, a financial instrument that is independent of underlying assets lacks the core trait that defines derivatives. Similarly, an investment product guaranteed by government bonds pertains to fixed-income securities, while a type of stock that pays dividends regularly relates to equity without any direct association to the underlying asset's performance in the context of derivatives. Thus, the definition that accurately encompasses derivatives is one that highlights their dependence on the performance of other assets.