On "Duration" and the Optimal Maturity Structure of the Balance Sheet

M.A. Grove

Bell Journal of Economics, 1974, vol. 5, issue 2, 696-709

Abstract: The concept of the duration of an income stream has been employed in a variety of contexts in applied economics and finance. In this paper, duration is used to consider the general problem of choosing the optimal structure of the balance sheet under conditions of risk. Though this problem has been examined elsewhere in the literature, it has usually been discussed in terms of ad hoc rules such as "immunization" or hedging. The basis for the discussion of the problem here is a formal model of portfolio choice developed in the framework of the expected utility hypothesis of investment behavior. An examination of the comparative statics of the model and a comparison of it with the immunization rule constitute the main body of the paper.

Date: 1974
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