Torque Analogy
The duration gap calculation resemble a mechanical torque calculation but with moment arm and force replaced with average duration and total value respectively. It's like the children's seesaw lever with assets on the left part of the plank and liabilities on the right part. When the plank is balancing horizontally the time-value torque is zero meaning that the maturity of assets and liabilities are matched.
To be able to compare firms and banks of different size the equation has to be normalized by dividing everything by total assets giving the formula for the duration gap.
Read more about this topic: Duration Gap
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