4.3 Observable Market Price
To determine the fair-value-based measure of the underlying instrument in a share-based payment
arrangement, an entity must first consider whether there is an observable market price; that is, the price
that buyers are paying for an instrument (with the same or similar terms) in an active market, which is
the best evidence of fair value. An observable market price will generally only be available for shares of
public entities or for shares of nonpublic entities with recent transactions. For example, for grants of
restricted stock subject only to service or performance conditions, the market price of a public entity’s
common stock would be used as the fair-value-based measurement. However, for grants of stock
options, observable market prices would typically not exist (see Section 4.9.3 for additional information).
If an observable market price does not exist, an acceptable valuation technique must be used to
estimate the fair-value-based measure of the award.
See Section 4.12 for a discussion of the valuation of awards issued by nonpublic entities, and see
Section 4.9 for a discussion of option pricing models, which are valuation techniques used to estimate
the fair-value-based measure of options and similar instruments.