Business and Personal Finance Dictionary

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• DURATION GAP
  
  Estimates the net sensitivity of the fair value of our financial instruments (assets and liabilities, including derivatives) to movements in interest rates. Duration gap is presented in units expressed as months and reflects the average of the daily estimates for a given month or quarter).** A duration gap of zero implies that the change in value of assets from an instantaneous rate move will be accompanied by an equal and offsetting move in the value of debt and derivatives, thus leaving the net fair value of equity unchanged. However, because duration does not capture convexity exposure (the amount by which duration itself changes as rates move), actual changes in fair value from interest rate changes may differ from those implied by duration gap alone.
  
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