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Fair Value Premium Decomposition

for July-23-2024
Updated: Monday, July-22-2024
11:45pm 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

of Days
to End

Interest Rate %
(from Yield Curve)
(Link to Details)

Interest on the Index


(Divisor Adjusted)
(Link to Details)


Fair Value
S&P 500              
    SEP 2024 59   6.68    58.47     - 13.49    = 44.98   
    DEC 2024 151   6.23    140.98     - 32.90    = 108.08   
Nasdaq 100              
    SEP 2024 59   6.68    208.29     - 29.33    = 178.96   
    DEC 2024 151   6.23    502.23     - 73.72    = 428.51   
Dow Jones              
    SEP 2024 59   6.68    424.66     - 152.55    = 272.11   
    DEC 2024 151   6.23    1023.97     - 346.57    = 677.40   

The above Fair Values are based on the following Spot Index Values:
Index Spot (Current) Value
S&P 500 5564.41       
Nasdaq 100 19822.87       
Dow Jones Industrial Average 40415.44       

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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