| Term | Definition |
|---|
| basis risk | arises from hedgers uncertainty to difference between spot price and futures price at expiration of hedge |
| perfect hedge | one that completely eliminates hedgers risk. does not always lead to better outcome than imperfect hedge. just leads to more certain outcome. A perfect hedge totally neturalizes companys gain from favorable price movements |
| minmum variance hedges | leads to no hedging when coefficient of corelation between changes in futures price and changes in price of asset being hedged is zero. |
Combine with other sets
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