Duration gap
In Finance, and accounting, and particularly in asset and liability management (ALM), the duration gap is the difference between the duration - i.e. the average maturity - of assets and liabilities held by a financial entity. A related approach is to see the "duration gap" as 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). The duration gap thus measures how well matched are the timings of cash inflows (from assets) and cash outflows (from liabilities), and is then one of the primary asset–liability mismatches considered in the ALM process. The term is typically used by banks, pension funds, or other financial institutions to measure, and manage, their risk due to changes in the interest rate; see and . By duration matching, that is creating a zero duration gap, the firm becomes "immunized" against interest rate risk. Duration has a double-facet view. It can be beneficial or harmful depending on where interest rates are headed. 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