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On "Duration" and the Optimal Maturity Structure of the Balance Sheet

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  • M.A. Grove

Abstract

The concept of the duration of an income stream has been employed in a variety of contexts in applied economics and finance. In this paper, duration is used to consider the general problem of choosing the optimal structure of the balance sheet under conditions of risk. Though this problem has been examined elsewhere in the literature, it has usually been discussed in terms of ad hoc rules such as "immunization" or hedging. The basis for the discussion of the problem here is a formal model of portfolio choice developed in the framework of the expected utility hypothesis of investment behavior. An examination of the comparative statics of the model and a comparison of it with the immunization rule constitute the main body of the paper.

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  • M.A. Grove, 1974. "On "Duration" and the Optimal Maturity Structure of the Balance Sheet," Bell Journal of Economics, The RAND Corporation, vol. 5(2), pages 696-709, Autumn.
    • Handle: RePEc:rje:bellje:v:5:y:1974:i:autumn:p:696-709
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    Cited by:

    1. Chaudron, Raymond F.D.D., 2018. "Bank's interest rate risk and profitability in a prolonged environment of low interest rates," Journal of Banking & Finance, Elsevier, vol. 89(C), pages 94-104.
    2. Mitchell, Karlyn, 1988. "The Debt Maturity Choice: A Multinominal Logit Analysis," Department of Economics and Business - Archive 259441, North Carolina State University, Department of Economics.
    3. Fooladi, Iraj J. & Roberts, Gordon S. & Skinner, Frank, 1997. "Duration for bonds with default risk," Journal of Banking & Finance, Elsevier, vol. 21(1), pages 1-16, January.
    4. S. Seshadri & A. Khanna & F. Harche & R. Wyle, 1999. "A Method for Strategic Asset-Liability Management with an Application to the Federal Home Loan Bank of New York," Operations Research, INFORMS, vol. 47(3), pages 345-360, June.
    5. Dennis R. Capozza & George W. Gau, 1984. "Mortgage Rate Insurance and the Canadian Mortgage Market," Canadian Public Policy, University of Toronto Press, vol. 10(3), pages 296-304, September.
    6. Bharati, Rakesh & Nanisetty, Prasad & So, Jacky, 2006. "Dynamic gap transformations: Are banks asset - transformers or brokers? or both?," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(1), pages 36-52, February.
    7. Robert W. Kolb & Raymond Chiang, 1982. "Duration, Immunization, And Hedging With Interest Rate Futures," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 5(2), pages 161-170, June.
    8. Chen, Jiakai, 2021. "LIBOR's poker," Journal of Financial Markets, Elsevier, vol. 55(C).
    9. repec:wvu:wpaper:10-04 is not listed on IDEAS

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