How Is 'Basis Risk' Managed in Derivative Hedging? ⎊ Path

How Is ‘Basis Risk’ Managed in Derivative Hedging?

Basis risk is the risk that the price of the asset being hedged (the underlying) and the price of the derivative used to hedge it do not move perfectly in sync. This can lead to the hedge being imperfect.

It is managed by selecting derivative contracts whose underlying asset is highly correlated with the asset being hedged, or by using derivatives with a similar maturity date to the exposure.

Define “Cross-Hedging” and Explain Its Relation to Basis Risk

How Does the Concept of “Basis Risk” Relate to Derivative Hedging?

How Can a Trader Attempt to Mitigate or Manage Basis Risk?

How Can a Trader Attempt to Minimize Basis Risk When Hedging?

What Is Basis Risk in a Hedging Strategy?

How Is Basis Risk Managed in a Futures Hedging Strategy?

How Does the Concept of ‘Basis Risk’ Affect an OTC Desk’s Hedging Strategy?

Define ‘Contango’ and ‘Backwardation’ in Futures Markets.