Singapore Airlines 2016 Annual Report Download - page 199

37 Financial Instruments (in $ million) (continued)
Financial instruments carried at fair value (continued)
Determination of fair value
The Group and the Company have carried all investment securities that are classified as available-for-sale financial assets and all derivative
instruments at their fair values.
The fair values of jet fuel swap contracts are the mark-to-market values of these contracts. The fair values of jet fuel option contracts are determined
by reference to available market information and the Black-Scholes option valuation model. As the Group hedges its jet fuel requirements
in Mean of Platts Singapore Jet Kerosene (“MOPS”) and that the majority of the Group’s fuel uplis are in MOPS, the MOPS price (2016: USD
47.05/BBL, 2015: USD 67.99/BBL) is used as the input for market fuel price to the Black-Scholes option valuation model. Consequently, the
annualised volatility (FY2015/16: 39.07%, FY2014/15: 34.84%) of the jet fuel swap and option contracts is also estimated with daily MOPS price.
The continuously compounded risk-free rate estimated as average of the past 12 months Singapore Government Securities benchmark issues’
one-year yield (FY2015/16: 1.06%, FY2014/15: 0.52%) was also applied to each individual jet fuel option contract to derive their estimated fair
values as at the end of the reporting period.
The fair values of InterContinental Exchange (“ICE”) Brent swap and Brent-MOPS crack swap contracts are also determined by reference to
available market information and are the marked-to-market values of these swap contracts. As the Group hedges in ICE Brent and Brent-MOPS
crack, the ICE Brent futures contract price and its dierential relative to MOPS price are used as the marked-to-market prices.
The fair value of forward currency contracts is determined by reference to current forward prices for contracts with similar maturity profiles.
The fair values of foreign currency option contracts, interest rate swap contracts and interest rate cap contracts are determined by reference to
valuation reports provided by counterparties.
The fair value of cross currency swap contracts is determined based on referenced market prices for existing cash flow profiles pre-agreed with
counterparties at trade inception.
The fair value of quoted investments is generally determined by reference to stock exchange quoted market bid prices at the close of the business
at the end of the reporting period. For investments where there is no active market, fair value is determined using valuation techniques. Such
techniques include using recent arm’s length market transactions or reference to the current market value of another instrument (which is
substantially the same).
Annual Report FY2015/16 197