Abstract
We examine the ability of alternative specifications of duration gap models to map the value paths of thrift institutions' portfolio equity under various changes in the term structure. We develop unique estimates for changes in thrifts' portfolio equity from characteristically complex combinations of multiperiod cash inflows and outflows. The cash flows are mathematically imputed from Section H reports filed with the Federal Home Loan Bank Board and their structure is dependent on the level of interest rates, recognizing the importance of prepayment options on most thrift assets. The duration models employed are proposed in prominent finance literature. Changes in portfolio values are derived from both vertical movement and shape changes in the term structure. We find that complex single factor duration gap models applied to thrifts are not materially more efficient than the simple Macaulay model.
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