What is duration gap management?

Duration gap management is a risk management strategy used by financial institutions to assess and manage interest rate risk in their portfoliOS. It involves measuring the difference between the duration of assets and liabilities, which reflects the sensitivity of the portfolio's value to changes in interest rates. By managing this gap, institutions can better align their interest rate exposure and mitigate potential losses from rate fluctuations. This approach helps ensure that the cash flows from assets and liabilities are matched effectively, maintaining financial stability.