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 Fair Value Premium Decomposition for Sept-16-2024
 Updated: Saturday, Sept-14-2024 11:45am ET
Fair value premium, hereafter called just fair value, is that difference between the futures value and the spot index value such that the futures and the equity markets are in equilibrium. (Some label fair value as the value of the futures and fair value premium as the aforementioned difference; the convention here is to label the difference as fair value.) At fair value, there is no positive nor negative bias that the two markets mutually exert on each other.

Fair value (FV) is equal to the interest that could be earned on the index (i.e., cost of carry) minus the relevant stock dividends occurring during the futures' duration, which is the time from the given date (which is usually today and, for this web page, is the "for" date listed under the page title) until the futures' settlement (expiration) date. Thus, fair value consists of the two components of interest earned and dividends. This web page illustrates the magnitude and, hence, comparative relevance of these two components.

In Summary:
FV = Interest on the index from now to the future's expiration - Dividends(Divisor Adjusted)

FV =
(Number Days / 365)
Index Value * [(1 + interest rate)   -1]

-

(Sum of Dividends) / Divisor

Index Futures

Number
of Days
to End

Interest Rate %
(from Yield Curve)

Interest on the Index

-

Dividends

=

Fair Value
(FV)
S&P 500
DEC 2024 95   5.92    84.85     - 19.74    = 65.12
MAR 2025 186   5.81    164.37     - 38.73    = 125.64
Nasdaq 100
DEC 2024 95   5.92    294.32     - 43.77    = 250.55
MAR 2025 186   5.81    570.14     - 84.04    = 486.10
Dow Jones
DEC 2024 95   5.92    624.31     - 195.78    = 428.53
MAR 2025 186   5.81    1209.37     - 388.99    = 820.38

The above Fair Values are based on the following Spot Index Values:
Index Spot (Current) Value
S&P 500 5626.02
Nasdaq 100 19514.58
Dow Jones Industrial Average 41393.78

 Notes to the Calculations • Internal values have a precision of at least twelve decimal places. Displayed values, however, are rounded to two decimal places. • Therefore, if you perform computations using the rounded amounts in the above two tables, you may get slightly different values.

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