Duration Gap model Focuses on either managing the market value of stockholders equity or net interest income but

not both! Duration GAP analysis emphasizes the impact on equity. Compares the duration of a banks assets with the duration of the banks liabilities and examines how the economic value of stockholders equity will change when interest rates change. But how can it be used to protect net interest income? EVE: Economic value of Equity analysis focus on changes in stockholders equity given potential changes in interest rates Duration GAP Analysis: compares the price sensitivity of a banks total assets with the price sensitivity of the banks total liabilities to assess the impact of potential changes in interest rates on stockholders equity. But also somehow on net interest income.

EVE=MVA-MVL Economic Value of Equity is equal to Market value of Assets less the Market Value of Liabilities If deltaEVE=deltaMVA-deltaMVL And Duration GAP DGAP=DA-(MVL/MVA)DL Then: DeltaEVE=-DGAP[deltaY/(1+Y)]MVA Y=the general level of interest rates To protect the EVE against any change of i(interest rates) DGAP should equal 0 or DGAP=0