For a cash-settled vanilla interest rate swaption traded with forward premium paid in full at expiry of the option, what should the "mark-to-market" be during the life of the option?

Should it be similar to an IR swap (i.e. value of zero at trade inception) rather than including the premium in the present-value, since net money is zero at time of trade (when the premium is paid at expiry)? Or is there a standard convention?

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    $\begingroup$ Depends how you define the mark to market, but if it for computing exposure to the counterparty then you should compute the PV of all flows in the future = swaption PV - premium PV. Likewise for an IR swap where the mark to market is not zero after time has passed and rates have moved. $\endgroup$ – Antoine Conze May 29 '17 at 9:37

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