Basis Risk Solution

STEP 0: Pre-Calculation Summary
Formula Used
Basis Risk = Future Price of Contract-Spot Price of Hedged Asset
BR = FPC-SPHA
This formula uses 3 Variables
Variables Used
Basis Risk - Basis Risk is the financial risk that traders assume when they hedge a position by holding an opposing position in a derivative, like a futures contract.
Future Price of Contract - Future Price of Contract refers to the agreed-upon price at which a specific commodity, financial instrument, etc will be bought or sold on a future date, as specified in a futures contract.
Spot Price of Hedged Asset - The Spot Price of Hedged Asset refers to the current market price at which the underlying asset can be bought or sold for immediate delivery in the spot market.
STEP 1: Convert Input(s) to Base Unit
Future Price of Contract: 22255 --> No Conversion Required
Spot Price of Hedged Asset: 7500 --> No Conversion Required
STEP 2: Evaluate Formula
Substituting Input Values in Formula
BR = FPC-SPHA --> 22255-7500
Evaluating ... ...
BR = 14755
STEP 3: Convert Result to Output's Unit
14755 --> No Conversion Required
FINAL ANSWER
14755 <-- Basis Risk
(Calculation completed in 00.004 seconds)

Credits

Created by Kashish Arora
Satyawati College (DU), New Delhi
Kashish Arora has created this Calculator and 50+ more calculators!
Verified by Vishnu K
BMS College of Engineering (BMSCE), Bangalore
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Basis Risk Formula

Basis Risk = Future Price of Contract-Spot Price of Hedged Asset
BR = FPC-SPHA

What is Basis Risk?

Basis risk refers to the risk that arises when there is a mismatch or divergence between the price movements of a hedging instrument (such as a futures contract or derivative) and the underlying asset or liability being hedged. It occurs when the correlation between the hedging instrument and the underlying asset is not perfect, leading to potential losses or inefficiencies in hedging strategies.

How to Calculate Basis Risk?

Basis Risk calculator uses Basis Risk = Future Price of Contract-Spot Price of Hedged Asset to calculate the Basis Risk, Basis Risk refers to the risk that arises when there is a mismatch or divergence between the price movements of a hedging instrument (such as a futures contract or derivative) and the underlying asset or liability being hedged. Basis Risk is denoted by BR symbol.

How to calculate Basis Risk using this online calculator? To use this online calculator for Basis Risk, enter Future Price of Contract (FPC) & Spot Price of Hedged Asset (SPHA) and hit the calculate button. Here is how the Basis Risk calculation can be explained with given input values -> 14755 = 22255-7500.

FAQ

What is Basis Risk?
Basis Risk refers to the risk that arises when there is a mismatch or divergence between the price movements of a hedging instrument (such as a futures contract or derivative) and the underlying asset or liability being hedged and is represented as BR = FPC-SPHA or Basis Risk = Future Price of Contract-Spot Price of Hedged Asset. Future Price of Contract refers to the agreed-upon price at which a specific commodity, financial instrument, etc will be bought or sold on a future date, as specified in a futures contract & The Spot Price of Hedged Asset refers to the current market price at which the underlying asset can be bought or sold for immediate delivery in the spot market.
How to calculate Basis Risk?
Basis Risk refers to the risk that arises when there is a mismatch or divergence between the price movements of a hedging instrument (such as a futures contract or derivative) and the underlying asset or liability being hedged is calculated using Basis Risk = Future Price of Contract-Spot Price of Hedged Asset. To calculate Basis Risk, you need Future Price of Contract (FPC) & Spot Price of Hedged Asset (SPHA). With our tool, you need to enter the respective value for Future Price of Contract & Spot Price of Hedged Asset and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.
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