Fair Value

From Reuters Financial Glossary

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: 1) the estimated premium over cash to allow for dividend flows and carrying costs, 2) the allowance for expected dividend flows and financing costs involved in holding the contract until expiry 3) how much higher futures should be over a share index after balancing the attractive financing cost of futures against the dividends that shareholders receive 4) accounts for financing costs and share dividends 5) 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