In stock markets, what primarily drives the price of a derivative?

The price of a derivative is primarily driven by the value of the underlying asset. Derivatives, such as options and futures, are financial contracts whose value is linked to the price movements of an underlying asset, which can be stocks, bonds, commodities, or indices.

When the value of the underlying asset increases, the price of the derivative generally increases as well, and the reverse is true when the value decreases. This strong correlation is fundamental to the function of derivatives in financial markets, allowing traders to speculate on or hedge against future price movements of the underlying asset without having to buy or sell the asset directly.

Factors like the performance of the issuing bank, interest rates, and market volatility may influence market conditions, but they do not have as direct an impact on the pricing of derivatives as the movements in the value of the underlying asset do. Thus, the underlying asset's value acts as the cornerstone upon which derivative pricing is established.