Fair Value Pricing

Fair Value Pricing

By Paul Cammisa

July 2019

When the price of a security isn’t readily available, fund managers are able to estimate the value of a security within a fund. This process is called fair value pricing or fair valuation.

Fair valuation can be applied by some firms on a daily basis. This occurs commonly to adjust the closing price of foreign securities trading in markets that have normal closing times prior to the fund’s valuation time - for example, Canadian securities linked to instruments on the London Stock Exchange.

Fair value pricing is also applicable when an extraordinary market event occurs. For instance, this can take place when a market or price becomes unexpectedly unavailable or is unavailable for an extended period. A recent example of an unanticipated market event is when Japan declared a 10-day national holiday to celebrate the succession of Japan’s new Emperor. This led to the Japanese markets being closed for an extended period of time.

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