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willsucceed

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tT
发表于 2011-7-11 19:00 | 只看该作者

Bank duration measure

assets, interest, increase, positive
Rules:
LADG = Duration of Assets - Leveaged Duration of Liabilities.

If LADG>0 then for an increase in interest rates, the market value of equity goes down.

Issue:
If you have a greater duration of assets over liabilities I'm thinking that an increase in interest rates is a positive thing. Can anyone explain this more in depth?
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Roflnadal

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2#
发表于 2011-7-11 19:00 | 只看该作者
In your example, the value of your assets will decline more than the value of your liabilities. How is that a good thing? It's great a in a decreasing interest rate environment, but not increasing.

NO EXCUSES

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ohai

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发表于 2011-7-11 19:00 | 只看该作者
In an extreme case, what if (Assets-Liabilities)<0, like those banks in 2008?

But I think A > L if not mentioned in the exam.

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bkballa

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4#
发表于 2011-7-11 19:00 | 只看该作者
if L > A and LADG < 0, then the opposite is true, an increase in interest rate helps your overall position. think of something like an underfunded pension plan for this sort of scenario...

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