Leverage adjusted duration gap (LADG)

CFA Level III
#1

Leverage adjusted duration gap (LADG), LADG = D_assets - (L/A)D_liabilities

Why only bank needs to use LADG? Elsewhere only use D_asset vs. D_liabilities. Thanks.

#2

Banks are highly leveraged, other institutions typically are not.

#3

Thanks, from risk perspective, the number should be as close 0 as possible?

#4

Yes. Zero gap indicates an immunized portfolio. Helpful if there is an interest rate shock.

#5

If you look carefully at the formula, it 's comparing the dollar duration of assets to the dollar duration of liabilities.

No . . . elsewhere we use _ dollar _ duration of assets vs. _ dollar _ duration of liabilities.