This has not been covered, you cannot be expected to know this question and the terms. No assignments covered this.
Calendar basis risk is same basis risk per Hull (that gain on hedge will not match loss underlying due to differences between the hedge instrument and the underlying) except of a particular sort: differences due to time. The Metallgesellschaft mistmatch between (long positions in) short-term futures and (short positions in) long term forwards is a calendar basis risk (long-term hedged by short-term instruments).
So it is manifest in abrubt changes in the forward curve. In MG, they were long "front" months (contracts nearer to expiration) and "short" back-month (contracts with maturities further away). Such strategy hurts in shift to contango.
Culp does say that the oil forward curve is relatively stable in at the long end (back month contracts) and volatile at the short end of the forward (front month contracts). Hence the notion that front month STACKS have more basis risk.
This site uses cookies to help personalise content, tailor your experience and to keep you logged in if you register.
By continuing to use this site, you are consenting to our use of cookies.