Imagine a stack and roll hedge of monthly commodity deliveries that you continue for the next five years. Assume the hedge ratio is adjusted to take into effect the mistiming of cashflows but is not adjust for the basis risk of the hedge. In which of the following situations is your basis risk likely the greatest?

A. Stack and roll in the front month in oil futures

B. Stack and roll in the 12-monthcontract in natural gas futures.

C. Stack and roll in the 3 year contract in gold futures.

Answer rating: 100% (QA)

The basis risk is greatest in the 3 year contract in gol... View the full answer