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Quantitative Finance · Glossary

What is Fair-value hierarchy?

Definition 27.10 Rates, Credit, XVA and Risk · Chapter 27 — P&L Explain and Independent Price Verification

The fair-value hierarchy classifies fair-valued positions by the observability of their inputs (IFRS 13): level 1, unadjusted quoted prices in active markets for identical instruments; level 2, other directly or indirectly observable inputs; level 3, unobservable inputs. Level 3 positions need the most verification and carry the largest reserves.

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