An investment that replicates, or attempts to replicate, the cash flows incident to ownership of an asset (usually a security, basket of securities, index, or other financial instrument). An investment is said to be synthetic where there is no ownership of the underlying asset. This is usually accomplished through use of a derivative, most commonly a total return swap (TRS) or an equity swap.

Synthetic securitizations are a type of securitization transaction in which the securitized asset pool is composed primarily of derivatives, usually credit default swaps (CDS) under which the issuer is the credit protection seller. Synthetic collateralized debt obligations (CDOs) are the most common type of synthetic securitization, though these transactions are rarely undertaken since the financial crisis. For more on this, see Practice Note, Securitization: US Overview: Synthetic Securitizations (Synthetic CDOs).