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In order to achieve a positive leverage adjusted duration gap (DA-kDL>0) , a financial institution with zero leverage adjusted duration gap  can reduce the duration of liability portfolio by Selling long term bonds in the asset portfolio, replace them with short term bonds Issuing long term bonds, use the funds to buy short term assets Selling short term bonds in the asset portfolio, replace them with long term bonds Issuing short term bonds, use the funds to buyback its long  term bonds

In order to achieve a positive leverage adjusted duration gap (DA-kDL>0) , a financial institution with zero leverage adjusted duration gap  can reduce the duration of liability portfolio by Selling long term bonds in the asset portfolio, replace them with short term bonds Issuing long term bonds, use the funds to buy short term assets Selling short term bonds in the asset portfolio, replace them with long term bonds Issuing short term bonds, use the funds to buyback its long  term bonds

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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In order to achieve a positive leverage adjusted duration gap (DA-kDL>0) , a financial institution with zero leverage adjusted duration gap  can reduce the duration of liability portfolio by

Selling long term bonds in the asset portfolio, replace them with short term bonds

Issuing long term bonds, use the funds to buy short term assets

Selling short term bonds in the asset portfolio, replace them with long term bonds

Issuing short term bonds, use the funds to buyback its long  term bonds

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