I don't think it's the first. I value my miles considerably higher than the cost at which I acquired them. Unless you are importing some pretty sophisticated opportunity cost issues.

If what you mean by number 1 is "the cost at which you can easily acquire an unlimited number," then maybe it's closer. But I can acquire 6k Hilton for $3.95. I value them at much more than 6 1/1000ths of a cent.

I also don't really agree with "how much value you ascribe to the free stuff you can get with them" as the value either. It's too abstract and there's a timing issue.

I really don't understand what is wrong with the most basic formulation: the price at which you would be ambivalent between taking the money or taking the points. This may well, for some, be the value they ascribe to "free" stuff they can get with the points at a particular instant in time, but not always.

Ask yourself at what price you would sell your points. Ask yourself at what price you would buy more. If those numbers are different, figure out why. Either way, they bracket your value of the points.