Marking to market

This is the process of updating a portfolio to reflect the latest available prices. So, for example, if you own 100 shares that were worth £250 in total last night, but when the London Stock Exchange closes tonight are priced at £2.70 each, you would mark up your portfolio by £20, since 100 x £2.70 = £270.

This is a straightforward process provided there is a readily available market price. Things get much trickier when there are few recent transactions on which to base a price, a problem encountered lately in the market for many subprime debt securities.

The alternative, ‘mark to model’ is contentious as in effect it lets the owner of a security value it using their own subjective assumptions about what it is worth.

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