A detailed description of the system in place at Aareal Bank AG to measure, limit and manage risks throughout the Aareal Bank Group is presented in the risk report as part of the management report. The disclosures on the description and the extent of the risks resulting from financial instruments in accord- ance with IFRS 7 are also included in the risk report. The disclosures in accordance with IFRS 7.36(a) and (d) as well as IFRS 7.37 are now made in the notes to the consolidated financial statements, while in the previous year, they were included in the risk report. (65) Fair value of financial instruments Fair value of financial instruments within the meaning of IFRS is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm's length transaction. To that extent, it is equivalent to the amount that will be paid for an asset in a "regular way" transaction between two parties that are independent from one another. The Aareal Bank Group determines the fair value of financial instruments in accordance with the hierarchy specified in IAS 39.48 et seq. The existence of published (i. e. observable) price quotations in an active market is the best evidence of fair value, and when they exist they are used to measure the financial asset or financial liability involved. In order to determine the quoted market price of a financial instrument in an active market, a transaction involving the financial instrument concerned on the reporting date or the last trade date must be used as the basis. If no transaction has occurred in the financial instrument on the reporting date, the reporting entity shall rely on transaction prices applicable shortly before the reporting date. Listed financial instruments (such as equities, bonds, or other debt securities) are generally measured on the basis of applicable market prices, if there is an active market. If the market for a financial instrument is not (or no longer) active, the fair values of these products are established by using valuation techniques. In this context, the fair values are derived from market prices of recent transactions in the corresponding financial instrument or currently observable market prices of comparable financial instruments using a particular valuation technique. If past or comparable market prices are not available for certain products, we use proven valuation models or indicative prices for pricing financial instruments. The pricing using proven valuation models is based on parameters observable in the market (such as interest rates, volatilities, credit spreads). Cash flows are determined on the basis of the contractual arrangements until the expected end of the term, and discounted using the interest rate curve of the relevant market, taking into account mark-ups based on credit quality and liquidity. The application of such valuation methods is partially associated with estimates made by the management. In accordance with this approach, the fair value of securities for which no active market exists is determined as the present value of the expected future cash flows, taking into account issuer-specific credit and liquidity spreads, or on the basis of indicative prices. Essentially, the measurement of asset-backed securities (predominantly CMBS and RMBS) is based on indicative prices, given the absence of a generally-accepted valuation model to date (as indicated in a memorandum issues by the Institute of Public Auditors in Germany on 10 December 2007, dealing with accounting and measurement issues raised by the sub-prime crisis). Such indicative prices are first (D) Reporting on Financial Instruments 159Aareal Bank Group ­ Annual Report 2008 | Consolidated Financial Statements | Notes