Which model is effectively a mark-to-market approach?

The CreditMetrics Model is indeed aligned with a mark-to-market approach as it emphasizes measuring and managing credit risk through a market-based perspective. This model assesses the credit risk of portfolios by analyzing the current market values of the underlying assets and the default probabilities associated with those assets.

At its core, CreditMetrics evaluates the potential changes in the value of a portfolio as credit ratings change, which is very much in tune with the concept of mark-to-market that reflects the current market conditions. This approach allows for dynamic risk assessment by regularly updating exposures based on market conditions and assigning values to potential credit events based on their impact on the market value of the portfolio.

In contrast, while the other models listed also address aspects of credit risk, they do not primarily operate through a mark-to-market lens. The Merton Model, for instance, is based on the structural approach to default risk, while the Moody's-KMV EDF Model utilizes historical default data rather than real-time market values. The CreditRisk+ Model also focuses on probability distributions for defaults without the immediate incorporation of market value adjustments. Thus, the CreditMetrics Model stands out for its effective use of a mark-to-market approach in the management of credit risk.