Fair Value Technical Explanation What are the three pricing input levels?
• The term inputs is used in SFAS 157 and is used in applying various valuation techniques (approaches). Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. • To increase consistency and comparability in fair value measurements and related disclosures, SFAS 157 created a fair value hierarchy. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. • The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1), and the lowest priority to unobservable inputs (Level 3). What is the definition of Level 1 inputs? Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactio
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