... in market value when market interest rates rise. Strategic Investments can use duration gap to stabilise portfolios net worth. For Strategic Investments to calculate their Duration Gap, they will need estimates of expected cash flows, maturities, and current market yield for all assets and liabilities The Duration Gap DGAP = DA - {DL (TL\TA)} DGAP = Duration Gap DA = Dollar Weighted Duration of Asset Portfolio DL = Dollar Weighted Duration of Liabilities TL = Total Market Value of Liabilities TA = Total Market Value of Assets DGAP is measured in years and is a measure of the mismatch in the average duration of the assets and the liabilities. The larger the mismatch, the greater the impact of unexpected interest rate changes on the market value of the net worth of the bank. Positive Duration GAP Interest Rates Increase Assets have a higher duration so they will decrease more in value than liabilities. This causes the Net Worth ...

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