The perils of pricing

As institutional investors pour more capital into hedge funds, the valuation of credit derivatives and other complex financial instruments has emerged as a major risk management issue for all parties involved. Stewart Eisenhart investigates

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Unspectacular returns from the equity markets have driven many investors to explore increasingly exotic and illiquid securities. This burgeoning demand has principally been met by the hedge fund community, but a number of hedge funds are struggling to provide their new clients with suitable investment and risk transparency. A crucial area is the way funds price their instruments, and institutional investors and funds of funds are discovering that the more complex the instruments, the more the

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