Duration Gap

Duration Gap

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Please note that the content of this book primarily consists of articles available from Wikipedia or other free sources online. The difference between the duration of assets and liabilities held by a financial entity. The duration gap is a financial and accounting term and is typically used by banks, pension funds, or other financial institutions to measure their risk due to changes in the interest rate. This is one of the mismatches that can occur and are known as asset liability mismatches. Another way to define Duration Gap is: it is the difference in the sensitivity of interest-yielding assets and the sensitivity of liabilities (of the organization ) to a change in market interest rates (yields). The duration gap measures how well matched are the timings of cash inflows (from assets) and cash outflows (from liabilities). When the duration of assets is larger than the duration of liabilities, the duration gap is positive. In this situation, if interest rates rise, assets will lose more value than liabilities, thus reducing the value of the firm's equity. If interest rates fall, assets will gain more value than liabilities, thus increasing the value of the firm's equity.show more

Product details

  • Paperback | 64 pages
  • 152 x 229 x 4mm | 104g
  • Anim Publishing
  • United States
  • English
  • 6136682109
  • 9786136682105