Since last October, Heartland, which has $1.5 billion in assets, has disclosed that it has had trouble accurately pricing its portfolios of high-risk and lightly traded municipal bonds, many of which were in default.

Two North American scholars won the Nobel Memorial Prize in Economic Science yesterday for work that enables investors to price accurately their bets on the future, a breakthrough that has helped power the explosive growth in financial markets since the 1970's and plays a profound role in the economics of everyday life.

In 1973, when three gifted researchers - Fischer Black, Myron S. Scholes and Robert C. Merton - introduced the first formula for accurately pricing options, the heady quantitative world of finance took another big step forward.

While the financial crisis of 2007-2010 resulted in a dramatic downturn in overall financial services employment, the effect has been opposite in the field of risk management: the bankruptcy of Lehman Brothers and the collapse of other large financial institutions underscored the need to accurately price the risk inherent in 21st century financial products and markets.

Two North American scholars who helped devise a formula for accurately pricing financial market options have won the Nobel Memorial Price for Economic Science.

Absent this shift, accurately pricing these securities, much less reviving the market for securitization, is next to impossible.

The capital market therefore needs to be efficient in terms of accurately pricing the shares of companies according to their future prospects, i.e. the present value of the future stream of dividends that the companies will produce.

Critics argued that credit rating agencies and investors failed to accurately price the risk involved with mortgage-related financial products, and that governments did not adjust their regulatory practices to address 21st-century financial markets.