Mark to Market Calculation Explained with an Example

When it comes to valuing interest rate swaps, mark-to-market (MTM) helps you understand the market value based on current market rates. In this post, we’ll strip away the jargon and show you exactly how the mark to market calculation works, using BlueGamma Solar’s interest-rate swap as our case study.

Mark to Market Calculation - What is it

At its simplest, a mark to market calculation discounts every future cashflow back to today’s date, giving you a single net value:

1. Future payments (fixed and floating)
2. Discount each one using the current yield curve
3. Sum the present values
4. Subtract fixed-leg from floating-leg
5. Result = today’s swap value (positive or negative)

How the calculation works for an Interest Rate Swap

1. List Future Cash Flows

• Fixed-leg: semi-annual coupons at 2.50 % p.a. on each notional tranche
• Floating-leg: benchmark rate (e.g. 1-month EURIBOR and 6-month Euribor) on the notionals, resetting each period

2. Fetch the Yield Curve

Request today’s spot rates (as at 30 Apr 2025) from our Market Data page.‍

3. Calculate Present Values

Use your 1-month and 6-month EURIBOR forward curve to get each forward rate

Compute each cashflow

Discount both sets of cashflows using OIS‐derived discount factors

4. Sum Up Each Leg

• PV(fixed) = total of discounted fixed payments
• PV(floating) = total of discounted floating payments

5. Compute MTM

A positive MTM means the floating-payer owes you; a negative MTM means you’re out-of-the-money as fixed-payer.

The BlueGamma Solar Example

BlueGamma Solar drew down debt between January 2026 and June 2030, hedging each tranche with a 2.50 % fixed swap. Here’s the notional schedule:

Semi-annual fixed payments fall due until December 2030, with floating payments on the same dates.

MTM Result & Interpretation

Plugging in the cash flows and discounting at 30 Apr 2025 provides us with a value:

MTM = – EUR 1 027 627

In plain English, the fixed-rate side (BlueGamma Solar) is out-of-the-money by just over one million euros if the swap were to be revalued on 30 Apr 2025.

Why we calculate Mark to Markets

A mark-to-market calculation is far more than an accounting line on your balance sheet. It’s a decision-making tool:

• Counterparty Exposure
  MTM tells you exactly how much you’d gain or lose with each swap counterparty. Banks and funds use it to set credit limits, anticipate margin calls and avoid nasty surprises if markets swing.

• Break-Cost Estimation
  Planning to refinance or restructure debt? MTM shows the penalty - or windfall - of unwinding your swap early. That way you can budget for any break fees and negotiate smarter terms.

• Strategic Decision-Making
  With real-time swap values in hand, you can choose whether to hold your hedge, renegotiate the rate or close out entirely - rather than flying blind on outdated book numbers.

• Regulatory & Reporting Compliance
  Auditors and regulators demand fair-value numbers. MTM keeps your P&L honest, your balance sheet transparent and your stakeholders reassured.

Next Steps

1. Request the Yield Curve

Head to our app to fetch today’s forward curve rates.

2. Watch the Walkthrough

Follow every step in our YouTube video.

3. Run Your Own MTM

Create a trial in BlueGamma and perform your own mark to market calculation in minutes using this guide.