basis risk


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Basis risk

Unexpected changes in the basis between the placing and the lifting of a hedge. Basis risk is in excess of convergence.

Basis Risk

The risk that a change in prevailing interest rates will change the price of a company's or investor's interest-bearing liabilities disproportionate to the price of interest-bearing assets. This would increase liabilities and decrease assets, resulting in a loss.

basis risk

The possibility that a commodity contract's basis will move against the investor. For example, an investor may buy a spot contract and sell short a higher-priced futures contract on the same commodity in expectation of a narrowing of the basis but may find that the basis widens instead.
References in periodicals archive ?
Two newly engendered risks, basis risk (the risk created by the fact that the return from the financial derivative is a function of weather at a prespecified geographical location which may not be identical to the location of the firm) and credit risk (the risk that the counterparty to the derivative contract may not perform), are analyzed in this article.
In this case, basis risk influences the spot price and the futures price is unaffected.
What you've done is take some basis risk between the type of portfolio that he or she runs and the index return you're paying away.