What is Intrinsic Value?

2020-10-08 08:41    forextraders

Intrinsic Value Definition. Intrinsic Value has several meaning. It can mean the perceived value of a natural object, like Gold or Silver, regardless of its actual price at any given time. In economics, value is determined by market demand and supply forces and is denoted by price. In finance, intrinsic value refers to the value of a security that is contained in the security itself. It is also referred to as fundamental value. One calculation method generally asserts that a discounted present value of a future stream of income payments equates to its intrinsic value, as opposed to its market price or book value. A proper evaluation, however, should also take into account intangibles such as brand, trademarks, and copyrights, but these items are difficult to incorporate on a quantitative basis. The term also may apply to derivatives and their value in the market. Although the underlying asset may have value on its own, the derivative may add value under specific conditions. For example, with currency options, the amount by which a call or put option is “in the money” represents the Intrinsic Value of the option instrument on its own. If the forex market moves such that the strike price is at or out of the money, then the option has no value.

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