Basis risk: Difference between revisions
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Good hedge design therefore seeks to eliminate or minimise basis risk in the hedged position, so far as practicable. | Good hedge design therefore seeks to eliminate or minimise basis risk in the hedged position, so far as practicable. | ||
== See also == | == See also == | ||
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* [[Hedge effectiveness]] | * [[Hedge effectiveness]] | ||
* [[Hedging]] | * [[Hedging]] | ||
Revision as of 15:23, 17 June 2016
Basis risk usually means the risk of an unfavourable change in the relationship between the price of a derivative and the market value of an underlying asset or liability being hedged.
For example resulting in a smaller profit being enjoyed on a hedging derivative, than the loss suffered on the underlying exposure.
Good hedge design therefore seeks to eliminate or minimise basis risk in the hedged position, so far as practicable.
