basis risk

basis risk
The risk to a holder of financial instruments that a change in prevailing interest rates will not affect the prices of or yields on similar instruments in exactly equal amounts. For example, an increase in prevailing interest rates might raise 3-month U.S. Treasury yields by 100 basis points while 3-month certificate of deposit yields go up by only 85 basis points. One of the four primary components of interest rate risk.
Sometimes called spread risk. American Banker Glossary
Unexpected changes in the basis between the placing and the lifting of a hedge. Basis risk is in excess of convergence. Bloomberg Financial Dictionary
The basis for a particular product does not necessarily stay constant - changes in basis can occur for a variety of reasons. Such changes can cause either a profit or loss to be incurred by the holder of the product and thus constitute a risk. Basis risk can mean that a person using futures to hedge an underlying cash position cannot obtain a perfect hedge, where profits on one side of the hedge exactly offset losses on the other. Dresdner Kleinwort Wasserstein financial glossary
See also basis and basis trading. Dresdner Kleinwort Wasserstein financial glossary

* * *

   The risk that the price of a future will vary from the price of the underlying cash instrument as expiry approaches.
   ► See also Convergence.

Financial and business terms. 2012.

Игры ⚽ Поможем сделать НИР

Look at other dictionaries:

  • Basis risk — in finance is the risk associated with imperfect hedging using futures. It could arise because of the difference between the asset whose price is to be hedged and the asset underlying the derivative, or because of a mismatch between the… …   Wikipedia

  • Basis risk — The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for price risk. The New York Times Financial Glossary * * *    The risk that the price of a future will vary from the price of the underlying cash… …   Financial and business terms

  • Basis risk —   Is the risk of a movement between two different interest rate profiles, for example, LIBOR and US Treasury rates. See also Risk..., Foreign exchange risk, Interest rate risk, Liquidity risk and Country risk …   International financial encyclopaedia

  • Basis Risk — The risk that offsetting investments in a hedging strategy will not experience price changes in entirely opposite directions from each other. This imperfect correlation between the two investments creates the potential for excess gains or losses… …   Investment dictionary

  • Basis swap — A basis swap is an interest rate swap which involves the exchange of two floating rate financial instruments. A floating floating interest rate swap under which the floating rate payments is referenced to different bases. Usage of basis swaps for …   Wikipedia

  • Risk — Typically defined as the standard deviation of the return on total investment. Degree of uncertainty of return on an asset. The New York Times Financial Glossary * * * ▪ I. risk risk 1 [rɪsk] noun 1. [countable, uncountable] the possibility that… …   Financial and business terms

  • risk — (1) Noun The possibility of loss. (2) Noun The uncertainty of whether events, expected or otherwise, will have an adverse impact. In this context, the adverse impact is usually a quantity of return ( income) or value at risk. (3) Noun the… …   Financial and business terms

  • risk — In insurance law, the danger or hazard of a loss of the property insured; the casualty contemplated in a contract of insurance; the degree of hazard; a specified contingency or peril; and, colloquially, the specific house, factory, ship, etc.,… …   Black's law dictionary

  • basis swap — A type of interest rate swap in which the net cash flows that the parties agree to exchange are based upon the differences between two different interest rate indexes. Banks use basis swaps to hedge basis risk by locking in a net interest rate… …   Financial and business terms

  • Risk assessment — is a common first step in a risk management process. Risk assessment is the determination of quantitative or qualitative value of risk related to a concrete situation and a recognized threat. Quantitative risk assessment requires calculations of… …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”