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Mark-to-market: Difference between revisions
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{{anat|isda}}The value of an [[asset]] by reference to its [[market price]] — ie what folks are prepared to pay for it. Popular amongst derivatives folk. | {{anat|isda|}}The value of an [[asset]] by reference to its [[market price]] — ie what folks are prepared to pay for it. Popular amongst derivatives folk. Good pragmatic, non-dogmatic stuff. You will find all kinds of chat about [[bid|bids]] and [[offer|offers]], [[Reference Market-Makers - ISDA Provision|reference market-makers]] and so on. | ||
There the temptation might be to [[mark-to-model]] — cue much jiggery pokery and [[opacity]], because you value your posittions based on what your clever models — the same ones that did all that lovely [[backtesting]] — tell you. But [[Models.Behaving.Badly - Book Review|Models don’t always behave themselves, do they]]. Especially when they’ve been ginned up by self-interested credit derivative structurers or fanciful Enron employees. | |||
Mark-to-market has its drawbacks, especially in [[Illiquidity|illiquid]] contracts or for speculative new business lines for which there isn't yet a market. This did not stop [[Enron]] recognising estimated profits of more than $110 million from a 20-year deal with Blockbuster Video<ref>Remember them?</ref> for on-demand entertainment to various U.S. cities by notwithstanding dubious technical viability and no evidence of market demand<ref>''At the time''. In fairness, it ''was'' an idea before its time. But let not rose-tinted shades of 20:20 hindsight distract you from the essential fact: no-one knew that then, and it ''was'' accounting fraud</ref>. When the network failed to work, Blockbuster withdrew from the contract. Enron continued to recognize future profits, even though the deal resulted in a loss. | |||
{{Seealso}} | |||
*The [[Enron ron]] | |||