This excerpt taken from the UBS 6-K filed May 23, 2008.
The valuation of certain assets, including many of the positions related to the U.S. residential mortgage market, rely on models. For some or all of the inputs to these models there is no observable source
Where possible, we mark our assets at their quoted market price in an active market. In the current environment, such price information is not available for certain instruments linked to the U.S. residential mortgage market and we apply valuation techniques to measure such instruments. Valuation techniques use market observable inputs where available, derived from similar assets in similar and active markets, from recent transaction prices for comparable items or from other observable market data. For positions for which some or all of the reference data is not observable or has limited observability, we use valuation models with non-market observable inputs. These positions include super senior RMBS CDO tranches related to the U.S. residential mortgage market. There is no single market standard for valuation models in this area. Such models have inherent limitations; different assumptions and inputs would generate different results, and these differences could have a significant impact on our financial results. We are obliged to regularly review and update our valuation models to incorporate all factors that market participants would consider in setting a pricethis includes factoring in current market conditions. Judgment is an important component of this process, and we carefully consider whether the assumptions and inputs of our models remain appropriate to establish a fair value for the instrument. Changes in model inputs or in the models themselves could have a material impact on our financial results.