Gap Hedging


An asset-liability corporate hedge based on net assets, or the amount of a company’s shareholders’ equity. Less sophisticated than placing one hedge on the total assets of the company, and another on the total liabilities, gap hedging is the practice of simply hedging the net of the two, or owners’ equity. Assumes the volatility of assets and the volatility of liabilities are equal.

Investing Essentials

Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Bank anticipation notes (BAN)

Notes issued by states and municipalities to obtain interim financing for projects that will eventually be funded long term through the sale of a bond issue.

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