2016-FRR Exam Dumps | Which of the following attributes of duration gap model typically cause criticism? I. Basis risk II.

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GARP.2016-FRR.v2024-09-09.q145
Question 73

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Question 73/145

Which of the following attributes of duration gap model typically cause criticism?
I. Basis risk
II. Errors in the linear model
III. Costs of immunization
IV. Constant nature of calculation

A. I, II

B. II, III, IV

C. I, II, III

D. I, III, IV

Correct Answer: C

The duration gap model often faces criticism due to basis risk (differences between the instruments used for hedging and the actual exposures), errors in the linear model (assuming a linear relationship between changes in interest rates and changes in bond prices), and costs of immunization (the expense associated with adjusting the portfolio to maintain a zero duration gap).

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