An asset whose market value exceeds its book value. In other words, assets such as bonds, CDOs, mortgages, are said to be above-water when their coupons trade approximately at current market rates.

Holders of above-water asset may choose to keep them on balance sheet as long as their values are above-water. However, at times these assets may be liquidated to compensate the negative effect of holding underwater assets on expectation that their value will pick up in the future.