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Futures Fair Value Calculator

Calculate fair value of futures contracts from spot price, interest rate, dividends, and time to expiration to identify pricing discrepancies.

Futures Fair Value Calculator

Calculate fair value of futures contracts from spot price, interest rate, dividends, and time to expiration to identify pricing discrepancies.

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Guide

Calculating futures fair value and cost of carry

  • Futures Fair Value = Spot Price × e^(Cost of Carry × Time). Cost of carry includes interest rate, dividends, storage costs, and convenience yield.
  • Cost of Carry = (Interest Rate - Dividend Yield + Storage Cost - Convenience Yield) × Time. Positive cost of carry results in contango (futures exceed spot).
  • For financial futures (stocks, indices), cost of carry = Interest Rate - Dividend Yield. Dividends reduce cost of carry, making futures cheaper relative to spot.
  • For commodities, storage costs increase cost of carry, while convenience yield (benefit of holding physical commodity) decreases it. Net cost determines pricing.
  • If market futures price differs from fair value, arbitrage opportunities exist. Buy if futures are below fair value, sell if futures are above fair value (after accounting for costs).

Frequently Asked Questions

Futures fair value, cost of carry, and pricing analysis

What is futures fair value?

Futures fair value is the theoretical price of a futures contract based on spot price, interest rates, dividends, storage costs, and time to expiration. It represents the no-arbitrage price.

How is futures fair value calculated?

Futures Fair Value = Spot Price × e^(Cost of Carry × Time), where Cost of Carry = (Interest Rate - Dividend Yield + Storage Cost - Convenience Yield) × Time.

What is cost of carry?

Cost of carry is the net cost of holding an asset until futures expiration, including interest costs, dividends received, storage costs, and convenience yield. It determines the premium or discount of futures to spot.

What is contango?

Contango occurs when futures price exceeds spot price (positive basis). This is normal when cost of carry is positive (interest rate exceeds dividend yield, or storage costs exceed convenience yield).

What is backwardation?

Backwardation occurs when futures price is below spot price (negative basis). This happens when convenience yield exceeds storage costs, or when there is strong demand for immediate delivery.

How do dividends affect futures fair value?

Dividends reduce cost of carry (dividend yield is subtracted), making futures cheaper relative to spot. Higher dividends result in lower futures fair value, all else equal.

What is convenience yield?

Convenience yield is the benefit of holding physical commodity (e.g., ability to use in production, avoiding supply disruptions). It reduces cost of carry and can cause backwardation.

How does time to expiration affect fair value?

Longer time to expiration increases the impact of cost of carry. As expiration approaches, fair value converges to spot price (basis converges to zero).

What if market futures price differs from fair value?

If market price differs significantly from fair value (after accounting for transaction costs), arbitrage opportunities exist. Buy if futures are below fair value, sell if futures are above fair value.

Can I use fair value to predict futures prices?

Fair value provides a theoretical benchmark, but actual prices may deviate due to market sentiment, supply/demand, and other factors. Use fair value as a guide, not a prediction.

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Futures Fair Value Calculator

Calculate fair value of futures contracts from spot price, interest rate, dividends, and time to expiration to identify pricing discrepancies.

How to use Futures Fair Value Calculator

Step-by-step guide to using the Futures Fair Value Calculator:

  1. Enter your values. Input the required values in the calculator form
  2. Calculate. The calculator will automatically compute and display your results
  3. Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Futures Fair Value Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Futures Fair Value Calculator is designed to be user-friendly and provide instant calculations.

Is the Futures Fair Value Calculator free to use?

Yes, the Futures Fair Value Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Futures Fair Value Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Futures Fair Value Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.