Impact-adjusted valuation and the criticality of leverage

Impact-adjusted valuation and the criticality of leverage

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Mark-to-market or ‘fair-value’ accounting is standard industry practice. It consists of assigning a value to a position held in a financial instrument based on the current market clearing price for the relevant instrument or similar instruments. This is commonly justified by the theory of efficient markets, which posits that at any given time market prices faithfully reflect all known information about the value of an asset. However, mark-to-market prices are only marginal prices,