A non–financial variable not specific to a party to the contract includes, for example, an index of earthquake losses in a particular region and an index of temperatures in a particular city. A non–financial variable specific to a party would be, for example, the occurrence or non-occurrence of a fire that damages or destroys an asset of a party to the contract. An embedded derivative is described in IAS 39 as a component of a hybrid (combined) instrument that also includes a non–derivative host contract – with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand alone.
