Real-time valuation & mark-to-market

The idea is simple but essential: a position’s worth is what the market says today, not what you paid. MtM revalues the book continuously as prices move:

Legacy systems mark the book overnight, so the desk begins each day looking at yesterday’s valuation. In volatile markets that lag is dangerous, a position can move materially before anyone sees it.

Real-time valuation revalues positions as live prices and forward curves update, so P&L reflects the current market. The Valuation module is built for this: continuous mark-to-market rather than a nightly job.

Marking a commodity position to market requires three things working together:

• The position, the current, validated book from trade capture.
• Market data, spot prices, forward curves, and for options, volatility.
• A valuation model, straightforward for linear instruments, model-based (e.g. Black-76) for options.

When these read from one governed model, valuation, risk, and reporting all agree.

For a linear position the value is just quantity times the difference between the forward price and the traded price, discounted. For an option, a model such as Black-76 prices it from the forward, strike, volatility, and time to expiry:

pythonimport math
from statistics import NormalDist
N = NormalDist().cdf

def black76_call(F, K, sigma, T, r):
    """Value of a European call on a forward F (Black-76)."""
    d1 = (math.log(F / K) + 0.5 * sigma**2 * T) / (sigma * math.sqrt(T))
    d2 = d1 - sigma * math.sqrt(T)
    return math.exp(-r * T) * (F * N(d1) - K * N(d2))

# Linear position: value is just discounted quantity x (forward - traded)
def linear_value(qty, forward, traded, r, T):
    return qty * (forward - traded) * math.exp(-r * T)

Two valuation concepts matter for understanding daily P&L. Inception (day-1) P&L is the value captured at the moment of trade if it is struck away from mid-market. P&L explained (P&L attribution) decomposes the change in value into its drivers, price moves, curve shifts, time decay, FX, and new trades, so the desk can see why P&L changed, not just that it did.

Both are materialized as dedicated P&L marts so finance and the front office read the same attribution.