GAP ANALYSIS

  1. Process in which a firm compares its actual performance to its projected performance to assess if they have met these expectations and used their resources efficiently. It answers two points: current state and target state.
  2. Asset-liability management technique which can be used to determine interest rate risk or liquidity risk, except credit risk. It is a simple IRR measurement method getting the difference between rate sensitive assets and rate sensitive liabilities over a specific time period. This analysis works best if assets and liabilities are comprised of fixed cash flows. Hence, a substantial shortcoming of gap analysis cannot handle options since options have unknown cash flows.

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GAP AMOUNT
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