When most financial institution presidents and CFOs hear the terms Economic Value of Equity (EVE) or Net Economic Value (NEV), a chill runs down their spine. Just the thought of explaining what EVE is, let alone the results of an EVE analysis, to a board of directors can be daunting. But EVE can be a useful tool in an institution's interest rate risk measurement arsenal, so it is important for those involved in the asset/liability management (ALM) process to understand what EVE is, what to consider when modeling EVE, and what the resulting EVE numbers truly mean.
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