Mark-to-market

ISDA Anatomy™ incorporating our exclusive ISDA in a Nutshell™ Go Premium Index: Click ᐅ to expand: ISDA Navigation The Varieties of ISDA Experience Subject 2002 (wikitext) 1992 (wikitext) 1987 (wikitext) Preamble Pre Pre Pre Interpretation 1 1 1 Obligns/Payment 2 2 2 Representations 3 3 3 Agreements 4 4 4 EODs & Term Events 5 Events of Default FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events Illegality • Tax Event • TEUM • CEUM • ATE • 5 Events of Default FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events Illegality • Tax Event • TEUM • CEUM • ATE • 5 Events of Default FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events Illegality • FM • Tax Event • TEUM • CEUM • ATE • Early Termination 6 Early Termination ET right on EOD • ET right on TE • Effect of Designation • Calculations 6 Early Termination ET right on EOD • ET right on TE • Effect of Designation • Calculations • Set-off 6 Early Termination ET right on EOD • ET right on TE • Effect of Designation • Calculations • Set-off Transfer 7 7 7 Contractual Currency 8 8 8 Miscellaneous 9 9 9 Offices; Multibranch Parties 10 10 10 Expenses 11 11 11 Notices 12 12 12 Governing Law 13 13 13 Definitions 14 14 14 Schedule Schedule Schedule Schedule Termination Provisions Part 1 Part 1 Part 1 Tax Representations Part 2 Part 2 Part 2 Documents for Delivery Part 3 Part 3 Part 3 Miscellaneous Part 4 Part 4 Part 4 Other Provisions Part 5 Part 5 Part 5 Comments? Questions? Suggestions? Requests? Insults? We’d love to 📧 hear from you. Sign up for our newsletter.

The market value is the value of an asset by reference to its market price — ie what folks are prepared to pay for it at the particular point in time, rather than by assessing the value of the fundamental components of the asset. The latter involves ineffable wisdom, technical analysis and cojones of steel — and at times of stress is apt to make an owner feel aggreived at the world; the former is a bit like sticking something on eBay — hence, “marking to market” — and yields an instant answer if not necessarily gratification.

As long as the bid is “firm” and the market liquid then however estimable your fundamental valuation techniques, you can’t argue about a market value.

There the temptation might be to mark-to-model — cue much jiggery pokery and opacity, because you value your positions based on what your clever models — the same ones that did all that lovely backtesting — tell you. But 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 illiquid contracts or for speculative new business lines for which there isn't yet a market. This did not stop Enron recognising $110 million of estimated profits from a 20-year deal with Blockbuster Video for on-demand entertainment to various U.S. cities by notwithstanding dubious technical viability and no evidence of market demand. 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.

See also

• The Enron ron
• Models.Behaving.Badly — book review