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Interest Rate Risk and the Optimal Gap for Commercial Banks: An Empirical Study
Author(s) -
Wetmore Jill L. T.,
Brick John R.
Publication year - 1990
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1990.tb01297.x
Subject(s) - position (finance) , sample (material) , economics , econometrics , minification , business , mathematics , finance , physics , mathematical optimization , thermodynamics
The optimal gap of a depository institution is derived using a market value optimization model. The gap is estimated using portfolios of returns on rate‐sensitive assets and liabilities and is found to be not significantly different from zero. The estimate is compared to the average gap position of a sample of banks. It is found that the average gap position of a sample of banks is “too positive.” This suggests that banks are not showing risk minimization behavior in the positioning of the gap.