Consider a buyer of crude oil who wants to hedge its purchase price in October. The firm
buys December futures contracts on oil and will unwind the hedge in October. The firm
will buy the same type of oil and in the same delivery location as specified in the futures
contract. Which of the following is a relevant source of basis risk?
1. Changes in oil prices.
2. Changes in the storage cost of oil.
3. Changes in the riskless interest rate.
4. Changes in the convenience yield for oil.
Answers: 2
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Consider a buyer of crude oil who wants to hedge its purchase price in October. The firm
buys Dece...
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