What is a gap of maturity?
maturity gap is a term used to describe a strategy that is proposed to assess the relationship between the risk of ownership of assets and liabilities that generate income due to interest accrual and volatility of these holders. The basic idea is to find out whether the expected return on these types of investment, based on the market performance and the type of interest rate, are sufficient to deserve the degree of risk that the investor takes as part of the ownership of these shares. Although it is a more traditional approach, the maturity gap is less popular than in previous decades, with other methods that are often used to perform this type of evaluation.
The basic approach of the maturity gap includes an evaluation of the gap or the extent that is currently present between the costs of ownership and benefits realized from the company. This process actually starts when the investor is considering buying an asset or responsibility and involving the projectionThe program will achieve full maturity. Quantification of this type will also include permission of any events that could take place, such as a timely call for a bond problem, and take into account how it could change the type of return that is eventually generated from possession.
It is also possible to assess the gap of maturity at any point during the life of the holding, starting with the current date and considering the time it passes until full maturity is achieved. Here, the idea is to assess the market value for holding at strategic points between this current date and due date and then to multiply these values at the interest rate that is expected to prevail at these points. The process is relatively direct for possession that carry a fixed interest rate. If a floating or variable interest rate is used, this means not only to consider market movements that affect the holding value, but also changes in the economy that will moveOvi with an average interest rate that is used to calculate revenues.
One of the advantages of using access to maturity gaps is that it helps investors to determine whether it is a good idea, whether it is in its best interest of holding an asset or responsibility, or whether it will be time to sell before full maturity. It is possible to decide whether the asset performs to an acceptable extent or whether it is necessary to replace it with another posture can be decided by an accurate projection of what is likely to happen between the current date and another identified point. Although this is not the only approach to performing this determination, the use of a maturity gap can provide a relatively uncomplicated means of performing this assessment and possibly to arm the investor with information that eventually allows saving the amount of money.