Imagine a stack-and-roll hedge of monthly commodity

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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 cash flows but is not adjusted for the basis risk of the hedge. In which of the following situations is your calendar basis risk likely to be greatest?

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

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

C. Stack-and-roll in the three-year contract in gold futures

D. All four situations will have the same basis risk

Reference no: EM13569064

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