Valuing assets: The difference between mark to market and mark to model

Julie Brownlee, Fsp Invest, 06 Oct. 2015

Tags: mark to model, mark to market, valuation methods, valuing assets, what is mark to model,

When it comes to valuing assets, the most common way method is mark to market. But there is another method called mark to model.

So what is the difference between these two valuation methods?

Let’s take a closer look…

What is mark to market?

Mark to market is a common valuation method. The basis of an asset’s value (such as shares or bonds) is its market price.

For example, you have shares in Company ABC. They’re currently trading at R15 a share, so using mark to market, this is the value of these shares in your portfolio.

What is mark to model?

On the other hand, mark to model is a valuation method for securities that rarely trade and there isn’t a recent reference price to use.

Instead, internal pricing models or assumptions determine the value of these securities. This is mark to model.

These securities tend to be complex derivatives contracts and securitised debt instruments, explain the experts at Money Week.

The problems with the mark to model valuation method

The subprime mortgage crisis back in 2007 showed the problems with using this valuation method. Valuations can be wrong.

In the case of the subprime crisis, rates of default were much higher than forecast and holders of these securities ended up having to write off tens of billions of dollars.

Another problem with this method is that these illiquid securities are hard to sell quickly at a fair price. Portfolios using mark to model don’t necessary reflect a realistic value.

So there you have it. The difference between mark to market and mark to model.

*********** Best seller *************

I win 77.75% of all my bets!

Don’t believe me?

I’ve been identifying bookmaking errors for 20 years. I make a second income betting sports, and I’m willing to help you achieve this easy goal!

Click here to get started and bank easy money


Related QA

d.c.heger asked:
MY QUESTION IS – I bought Bitcoin & Etherium some time ago – at first they grew nicely but now they are lower than what I paid for them. Should I [read more]
Published at 04 Apr. 2018 in: Investing 5 shares due to rocket 1 Answer
kavesh.maharaj.73 asked:
Hi Josh. I would like some advice on TFSA. I can get an interest rate of 7.8% nominal at a bank if I invest the R33k upfront in a fixed deposit [read more]
Published at 19 Mar. 2018 in: Investing Tax free savings vehicle 2 answers
kavesh.maharaj.73 asked:
Hi Josh Quantum wants to buy back shares from shall investors at what I think is a low price of around R3.86. You tipped the share in February [read more]
Published at 14 Mar. 2018 in: Investing Real wealth 5 answers
elizastrydom asked:
Hi Timon I am interested in registering for your Red Hot Storm Trader service. I am already a Red Hot Penny Shares investor. My question is [read more]
Published at 28 Feb. 2018 in: Investing Trading platform and broker 1 Answer
ManuE asked:
I have an interest in investing in Bitcoin, I just don't know how. If I buy Bitcoin with R15 000, how much can make (Return On Investment)? [read more]
Published at 25 Feb. 2018 in: Investing Investment 1 Answer

Related articles:




Youtube Twitter Facebook

Connect with us:    

  • Accelerated Investor
  • Accessories