Beruflich Dokumente
Kultur Dokumente
Future/Spot convergence
The basis is the different between the spot price and the futures price Basis = spot price future price At expiry futures price equals or is very close to the spot price of the underlying
Basis Risk
Interruption in the convergence of the futures and spot prices Changes in the cost of carry Imperfect matching between the cash asset and the hedge asset 1. Maturity or duration mismatch
2. Liquidity mismatch
Arguments for and against hedging Hedging and Shareholders Hedging and competitors
Impact on profitability
Where,
P - coefficient of correlation between S and F S standard deviation of S F standard deviation of F
N no. of contracts to buy or sell to achieve target beta () n target beta P current value of the portfolio A current value of the futures contract