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9 Allowing for the variability of asset prices Volatility of asset value is often stated as the main problem with a market value of assets. However, it can be argued that stability itself is not a desirable feature of asset valuation, and that consistency overrides the question of stability. Volatility of asset value is not a problem in itself a volatile asset value may correctly reflect the underlying reality. However, in the context of the ongoing valuation of a longterm fund, comparing volatile asset values with a value of liabilities calculated using a stable interest rate is potentially misleading. In other words, the problem with a market value of assets is not the volatility of asset valuation as such, but inconsistency of asset and liability valuation bases. The key aim therefore is to create a consistent approach to the valuation of assets and liabilities, so that appropriate conclusions can be drawn from the valuation. In some situations, stability is considered a desirable feature of asset valuation. An unstable value of assets may make results harder to communicate and interpret. Also, it may be difficult in practice to establish a marketconsistent value of liabilities. One possible solution is to modify the method of valuing assets to make the value more stable and hence more consistent with a value of liabilities calculated using stable assumptions. Some sort of smoothed market value is sometimes seen as the solution to the problem with market values. However, smoothing does create a major problem. If a smoothed market value of assets is used, it is very hard to know what should be taken as a consistent rate of interest for the purpose of valuing liabilities.