Glossary

Fair value

The theoretical value of stocks or derivatives.

The fair value reflects the price at which the instruments are neither overvalued nor undervalued.

The concept of fair value is based on the "law of one price", which assumes that a single price must be determined for financial instruments with the same qualities (maturity, interest rates or underlying security). If the instrument is not valued fairly, investors can exploit price differences to make so-called arbitrage profits.

Fair values are calculated in particular for derivatives on the basis of theoretical models such as the Black-Scholes model for pricing options, or the cost-of-carry model for pricing futures.