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Beyond Market Failure

Valuation and risk management in the post credit crisis world


“Beyond market failure: valuation and risk management in the post credit crisis world” examines how companies are adapting to the new financial marketplace, where market processes cannot always be relied on to create a timely and “current” valuation of a thinly traded financial instrument. Even when markets are illiquid, traders and executives still need to manage risks and estimate fair values of their holdings.

This article addresses three questions around valuation and risk management.

  1. When market prices are not available, how do companies go about estimating fair values of financial instruments?
  2. How are companies beginning to re-organize valuation and risk management around complex financial instruments?
  3. What should boards and CFOs consider regarding their organizations’ valuations and related risk practices?

This is not a technical guide to valuation and risk management, but a discussion of how companies are increasing their capacity to respond to market failures and adopting leading practices to better manage valuation process. With or without the current crisis, boards and senior finance and risk executives have been considering how to improve their firm’s capabilities for valuation.

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