The positive value of duration gap that results when the duration of assets is larger than the duration of liabilities (i.e., when the weighted duration of assets minus the product of the weighted duration of liabilities and the ratio of total liabilities to total assets is positive):

D_Gap > 0 when D_A > D_L × L/A

Where: D_A and D_L denote the weighted durations of assets and liabilities, respectively; L and A denote the values of liabilities and assets, respectively. Duration gap is also positive when the duration of equity times the ratio of equity to total assets is positive:

D_Gap > 0 when D_E × E/A > 0

Where: D_E is the duration of equity and E is the value of equity.

A positive duration gap means that the market value of equity will fall when interest rates rise (this corresponds to a refinance position). In other words, a decrease in interest rates with a positive duration gap will cause capital to rise, while an increase in interest rates with positive duration gap will cause it to fall.