Summarizing FAS 157: The Fair Value Standard

1. Fair value definition: price received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.
2. Fair value price is the price a willing and informed seller will accept in an exchange with a willing and informed buyer in a principal or most advantageous market for the asset or liability being transacted.
3. Acceptable Valuation Techniques:
   1. Market Approach: Market prices for identical or similar assets and/or liabilities
   2. Income Approach
   3. Cost Approach
4. Valuation Input Hierarchy:
   1. Level 1: most desirable. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available. No discounts for the size of the block held.
   2. Level II: Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following:
      1. Quoted prices for similar assets or liabilities in active markets
      2. Quoted prices for identical or similar assets or liabilities in markets that are not active, that is, markets in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers (for example, some brokered markets), or in which little information is released publicly (for example, a principal-to principal market)
   3. Level III: Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity.
5. Examples

   Type	Market	FV Input	Level	Quality
   Fixed Income Security	Active	Market Price	1	Best
   Fixed Income Security	Not active principal market, active market for similar securites	Price for similar assets	2A	Best Level 2
   Fixed Income Security	No principal market, infrequent exchange between market participants	Assigned credit rating, market yield spread	2B	Less preferred Level 2