Risk glossary

 

Basis swap

Basis swaps are used to hedge exposure to basis risk, such as locational risk or time-exposure risk. For example, a natural gas basis swap could be used to hedge a locational price risk: the seller receives from the buyer a Nymex division settlement value (usually the average of the last three days’ closing prices) plus a negotiated fixed basis, and pays the buyer the published index value of gas sold at a specified location.

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