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The value or range of values of the difference between the forward or futures price and the spot price that offers no opportunity for profitable arbitrage at current carrying costs. For example, if the maximum risk-free lending rate is 6.0 percent and the minimum borrowing rate is 6.2 percent, the fair value basis of a zero coupon bond future 1-year out would be a range between 6.0 percent and 6.2 percent over spot. The range will be greater after transaction costs. In actual markets, participants' opportunity sets will be different and the fair value basis may range between a single point and a relatively wide interval. In some markets, such as DAX futures in Germany, there are structural arbitrage profits available and these may disappear only slowly over time. Also called Fair Value Premium. See Basis (1).
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