Capital Markets Examiner School, Providence, RI

GAP Measurements – Question?

I'm looking at our gap report and it shows our cumulative gap to be 116% which is asset sensitive, yet when I look at the rates up simulation on the income shock report it shows my net interest margin declining when rates rise. Is there something wrong with the model?

GAP Measurements – Question?

 No , you've just observed the biggest weakness of the gap report. It doesn't capture option risk .

 There are several accounts where option risk is likely to show up on a bank's balance sheet today.