A long hedge position benefits from weakening of basis

问题如下：

Which of the following statements are true with respect to basis risk?

I. Basis risk arises in cross-hedging strategies but there is no basis risk when the underlying asset and hedge asset are identical.

II. Short hedge position benefits from unexpected strengthening of basis.

III. Long hedge position benefits from unexpected strengthening of basis.

选项：

A.

I and II

B.

I and III

C.

II only

D.

III only

解释：

“II” is the only true statement. A short hedge position or a short forward contract benefits from any unexpected decline in future prices and subsequent strengthening of basis. An increase in basis is known as a strengthening of the basis. The payoff to the short hedge position is spot price at maturity (S2) and the difference between futures price i.e., (F1 – F2). Thus, payoff = S2 + F1 – F2 = F1 + b2, where b2 is the basis.

Basis risk can also arise if underlying asset and hedge asset are identical. This can happen if the maturity of the hedge contract and the delivery date of asset do not match. A long hedge position benefits from weakening of basis.