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basis risk

   Also found in: Wikipedia 0.01 sec.
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 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.


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amp;nbsp;   Barnaby says the reason farmers in areas like Kansas—that have suffered multiple-year droughts—are willing to accept this basis risk is because the APHs have declined and increased their premium rates to the point where the coverage being offered at the higher premium costs does not make good economic sense.
Although basis risk has an expected value of zero, insurers will want to weigh the possibility of a significant recovery shortfall against the cost of other reinsurance alternatives.
The scenarios include new increasing and decreasing USD LIBOR interest rate scenarios coupled with new basis risk stresses to compensate for transactions that fund FFELP CP and T-Bill based assets with USD LIBOR, taxable and tax-exempt auction rate securities in addition to the use of remarketing rate notes,' said Managing Director Claire Mezzanotte.
 
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