Duration Gap = Macaulay Duration of Assets – {(L/A) x Macaulay Duration of Liabilities}To interpret the meaning of the above definition, we can mathematically prove that Right Hand Side (RHS) of the above equation is equal to {(E/A) x Macaulay Duration of Equities}; where (A) is the market value of total assets; (L) is the market value of total liabilities; (E) is the market value of total equities.

Clearly explain why we do not directly define the Duration Gap as {(E/A) x Macaulay Duration of Equities}.

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