Managing interest rate risk is one of the most important components of asset and liability management. Variation of the interest rate could affect both the interest earnings and the market value of equity. Interest rate management focuses on the sensitivity of net interest income. Net interest income (NII) equals the difference between interest revenues and interest expenses:

Here, SA and SL denote the interest sensitive assets and liabilities, and NSA and NSL refer to the non-sensitive ones. Interest rate of assets and liabilities are noted with and . The traditional approach of interest rate risk positioning of the balance sheet is based on gap models. Interest rate gap refers to the net asset position for a certain time period between interest-bearing assets and liabilities, which are repriced at the same time. The interest rate gap (G) equals:

The re-pricing gap table shows these interest-bearing items in the balance sheet grouped by the time of repricing...