Valuing hedge fund positions

Hello guys! Could you provide some sense into this question. Really stumbled and can’t get the logic

In valuing underlying hedge fund positions, the most conservative approach is most likely one that uses:

  1. the average of the bid and ask prices.
  2. bid prices for longs and ask prices for shorts.
  3. the most recent market prices.

2 is correct

The bid is always going to be less than or equal to the ask. If you are long and want to be conservative, you want the lowest price (bid) while if you are short you want to use the highest (ask) price.

Thank you!!