An accounting term defined by FASB. The amount at which an asset could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale. Quoted market prices in active markets are the best evidence of fair value and should be used as the basis for the measurement, if available. If a quoted market price is available, the fair value is the product of the number of trading units times that market price. If a quoted market price is not available, the estimate of fair value should be based on the best information available in the circumstances. The estimate of fair value should consider prices for similar assets and the results of valuation techniques to the extent available in the circumstances. Examples of valuation techniques include the present value of estimated expected future cash flows using a discount rate commensurate with the risks involved, option-pricing models, matrix pricing, option-adjusted spread models, and fundamental analysis. Valuation techniques for measuring assets should be consistent with the objective of measuring fair value. Those techniques should incorporate assumptions that market participants would use in their estimates of values, including assumptions about interest rates, default, prepayment, and volatility. (Note that the FASB definition in FAS 115 is replaced by the definition in FAS 133. American Banker Glossary
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In the context of futures, the equilibrium price for futures contracts. Also called the theoretical futures price, which equals the spot price continuously compounded at the cost of carry rate for some time interval. Bloomberg Financial Dictionary
More generally, fair value for any asset simply refers to the perception that it is neither underpriced (too cheap) nor overpriced (too expensive). Bloomberg Financial Dictionary
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The theoretical price at which a futures or options contract should trade. Dresdner Kleinwort Wasserstein financial glossary
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An option value derived from a mathematical option valuation model Exchange Handbook Glossary
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A term used in the futures market that represents the cash price plus the net cost of carry. The fair-value calculation for an equities index future is different for every account. It can be defined as any of the following:
- the estimated premium over cash to allow for dividend flows and carrying costs
- the allowance for expected dividend flows and financing costs involved in holding the contract until expiry
- how much higher futures should be over a share index after balancing the attractive financing cost of futures against the dividends that shareholders receive
- accounts for financing costs and share dividends
- the difference between the interest on cash and the dividends paid on the index over the remaining life of the future.
► See also Futures, Carrying Charge.
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fair value UK US noun [U] ACCOUNTING, FINANCE
► a way of calculating how much the assets of a business are worth based on how much would be paid for them if they were sold: »
The fair value of the investment was estimated at $89.5 million.
Financial and business terms. 2012.