duration gap

This is sometimes called a maturity mismatch, which can be measured by the duration gap.

Some of the limitations of duration gap management include the following:

By duration matching, that is creating a zero duration gap, the firm becomes immunized against interest rate risk.

"The Washington-based company aims to keep its duration gap between minus 6 months to plus 6 months.

When the duration of assets is larger than the duration of liabilities, the duration gap is positive.

When the duration gap is zero, the firm is immunized only if the size of the liabilities equals the size of the assets.

"The company said that in April its average duration gap widened to plus 3 months in April from zero in March."

The duration gap measures how well matched are the timings of cash inflows (from assets) and cash outflows (from liabilities).

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.

Generally, Fannie Mae tries to keep what it calls the "duration gap," a measure of the difference between when it receives payments on mortgages and when its debts are due, to six months or less.

Note that this method assumes that dits and dahs are always separated by dot duration gaps, and that gaps are always separated by dits and dahs.

Another way to define Duration Gap is: it is the difference in the price sensitivity of interest-yielding assets and the price sensitivity of liabilities (of the organization ) to a change in market interest rates (yields).

Managing any potential asset liability mismatch or duration gap entails matching the assets and liabilities respectively according to maturity pattern ("Cashflow matching") or duration ("immunization"); managing this relationship in the short-term is a major function of working capital management, as discussed below.