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Suppose the balance sheet of the bank is the following one: Assets: mortgage 2 years zero-coupon 100 USD (rate 4%, convexity: 25) Liabilities and equity:

Suppose the balance sheet of the bank is the following one:

Assets: mortgage 2 years zero-coupon 100 USD (rate 4%, convexity: 25)

Liabilities and equity: Deposits 1 year zero coupon 75 USD (rate 2.5%, convexity and equity 25 USD

Estimate the impact of a 25 bps increase on the bank value applying the convexity gap approach.

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