LADG and Leveraged Equity Duration

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RoccoLee

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LADG = (Asset * Duration of Asset - Liablity * Duration of Liability) / Asset
Leveraged Equity Duration = Equity * Duration of Equity - Borrowings * Duration of Borrowings) / Equity
Could someone tell me the logic behind these two formulas?
Why we don’t use equity to replace asset in the formula of LADG?
 
The duration gap is the difference of durations between the asset and liability. So far so good.
Liabilities are not always the same amount as assets (like with banks), so you need to scale the liability duration portion down with it’s relative size.
Hence you get, LADG = Da - (L/A) DL
 
The formulas you mention (and please note that LADG is not what you write but rather LADG = DA - (DL × L/A)
are just shortcut models to allow you to spot straight away an A/L mismatch between Assets and Liabilities in a Bank or other financial institution.
 
sunseeker wrote:
The formulas you mention (and please note that LADG is not what you write but rather LADG = DA - (DL × L/A)
are just shortcut models to allow you to spot straight away an A/L mismatch between Assets and Liabilities in a Bank or other financial institution.
Click to expand...
when you elaborate the formula I wrote, you will get the same result. I just try to remember the formula in this way better for me.
Thanks for your reminder anyway!
 
Apologies RoccoLee and thanks for pointing out the elaboration. Very good input.
 
S2000magician wrote:
MrSmart wrote:The duration gap is the difference of dollar durations between the asset and liability.
Click to expand...
Fixed.
Click to expand...
So the LADG is the net change in portfolio value (Change in Assets - Change in Liabilities) in percentage terms?
How do you derive the dollar duration gap with the LADG number?
 
MrSmart wrote:
S2000magician wrote:
MrSmart wrote:The duration gap is the difference of dollar durations between the asset and liability.
Click to expand...
Fixed.
Click to expand...
So the LADG is the net change in portfolio value (Change in Assets - Change in Liabilities) in percentage terms?
How do you derive the dollar duration gap with the LADG number?
Click to expand...
It’s scaled by 1/A.
I wrote an article on LADG that derives it: http://financialexamhelp123.com/leverage-adjusted-duration-gap-ladg/
 
I thought assets - liability= equity.
So why are we saying net assets?
 
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