What is mark-to-model?

Mark-to-model refers to a valuation technique that estimates the value of an asset or liability by using mathematical models and assumptions, rather than relying on actual market prices. This is often necessary when there is no active market for a particular asset or when market prices are unreliable or unavailable.

Mark-to-model can be a useful tool when valuing complex financial instruments, such as derivatives or structured products, that are not easily valued using market prices. It can also be helpful in determining the fair value of assets or liabilities in illiquid markets or during times of extreme market volatility.

However, mark-to-model is subject to significant judgment and the accuracy of the valuation is highly dependent on the assumptions and models used. As a result, it can be controversial and may be criticized as being too subjective or open to manipulation.