标题: Bank duration measure [打印本页] 作者: willsucceed 时间: 2011-7-11 19:00 标题: Bank duration measure
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?作者: Roflnadal 时间: 2011-7-11 19:00
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作者: ohai 时间: 2011-7-11 19:00
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. 作者: bkballa 时间: 2011-7-11 19:00
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...
