Duration gap

In Finance, and accounting, and particularly in asset and liability management (ALM), the duration gap measures how well matched are the timings of cash inflows (from assets) and cash outflows (from liabilities), and is then one of the primary asset–liability mismatches considered in the ALM process. The term is typically used by banks, pension funds, or other financial institutions to measure, and manage, their risk due to changes in the interest rate: by duration matching, that is creating a "zero duration gap", the firm becomes immunized against interest rate risk. See Financial risk management § Investment management.