97 ANNUAL REPORT 2010 The fair value is calculated net of the interest accrued to date  and is based on market prices, when available. When market  prices are not available, other valuation techniques, such as  option pricing or stochastic modeling, are applied. The valuation  techniques incorporate all factors that market participants  would consider and are based on observable market data, when  available.  revalued to fair value. All fair value gains or losses are  recognized in the income statement.  Expenditure incurred after initial recognition of the asset is  capitalized to the extent that the level of future economic  benefits of the asset is increased. Costs that restore or maintain  the level of future economic benefits are recognized in the  income statement as incurred. C. HEDGE ACCOUNTING Maintenance costs and other subsequent expenditure  NOTE 2.9   INVESTMENTS FOR ACCOUNT OF  POLICYHOLDERS As part of its asset liability management, the Group enters into  economic hedges to limit its risk exposure. These transactions  are assessed to determine whether hedge accounting can and  should be applied.  To qualify for hedge accounting, the hedge relationship is  designated and formally documented at inception, detailing the  particular risk management objective and strategy for the  hedge (which includes the item and risk that is being hedged),  the derivative that is being used and how hedge effectiveness is  being assessed. A derivative has to be effective in accomplishing  the objective of offsetting either changes in fair value or cash  flows for the risk being hedged. The effectiveness of the hedging  relationship is evaluated on a prospective and retrospective  basis using qualitative and quantitative measures of correlation.  Qualitative methods may include comparison of critical terms of  the derivative to the hedged item. Quantitative methods include  a comparison of the changes in the fair value or discounted  cash flow of the hedging instrument to the hedged item.  A hedging relationship is considered effective if the results of  the hedging instrument are within a ratio of 80% to 125% of  the result of the hedged item.  Cash flow hedges are hedges of the exposure to variability in  cash flows that is attributable to a particular risk of a  forecasted transaction or a recognized asset or liability and  could affect profit or loss. To the extent that the hedge is  effective, the change in the fair value of the derivative is  recognized in the related revaluation reserve in shareholders’  equity. Any ineffectiveness is recognized directly in the income  statement. The amount recorded in shareholders’ equity is  Fair value hedges are hedges of a change in the fair value of an  unrecognized firm commitment or an asset or liability (being  hedged item) that is not held at fair value through profit or loss.  The hedged item is remeasured to fair value in respect of the  hedged risk and any resulting adjustment is recorded in the  income statement. For hedge accounting purposes, a distinction is made between  fair value hedges, cash flow hedges and hedges of a net  investment in a foreign operation. All derivatives recognized on the balance sheet are carried at  fair value.  B. MEASUREMENT Derivatives with positive values are reported as assets and  derivatives with negative values are reported as liabilities.  Derivatives for which the contractual obligation can only be  settled by exchanging a fixed amount of cash for a fixed amount  of AEGON N.V. equity instruments are accounted for in  shareholders’ equity and are therefore discussed in the notes  on equity. Assets and liabilities may include derivative-like terms and  conditions. With the exception of features embedded in  contracts held at fair value through profit or loss, embedded  derivatives that are not considered closely related to the host  contract are bifurcated, carried at fair value and presented as  derivatives. In assessing whether a derivative-like feature is  closely related to the contract in which it is embedded, the  Group considers the similarity of the characteristics of the  embedded derivative and the host contract. Embedded  derivatives that transfer significant insurance risk are  accounted for as insurance contracts. Derivatives are financial instruments, classified as held for  trading financial assets, of which the value changes in response  to an underlying variable, that require little or no net initial  investment and are settled at a future date.  A. DEFINITION NOTE 2.10 DERIVATIVES Investments held for account of policyholders consist of  investments in financial assets, excluding derivatives, as well as  investments in real estate. Investment return on these assets is  passed on to the policyholder. Also included are the assets held  by consolidated investment funds that are backing liabilities  towards third parties. The accounting principles are the same as  those applicable to general account investments, as described  in note 2.8.  SHARPENING OUR FOCUS