The amount that is required to replace an existing (active) swap in the event a counterparty to the swap is unable to meet its obligations today (i.e., in case of default). This amount measures a swap’s current credit exposure (credit risk)- i.e., at a given point in time over the swap tenor.

Only in-the-money swaps (ITM swaps)- i.e., swaps with positive values- are worthy of having their swap credit exposure determined (by calculating their current replacement costs). Otherwise, i.e., in cases of out-of-the-money swaps (OTM swaps) or at-the-money swaps (ATM swaps)- which have zero or negative values- the counterparty is liable for no payment in the event of default, and determination of current replacement cost would be irrelevant.