medium · FRM Part 1 Financial Markets and Products
Which of the following is an example of 'rollover risk' in a hedging program?
- The risk that the underlying asset's price simply mean-reverts to its level seen just before a large recent directional move.
- A hedger must close a maturing futures position and enter a new one because the hedge horizon is longer than the contract's life.
- The risk that a hedger's existing long futures position somehow gets mistakenly rolled into an offsetting short futures position.
- The risk that the exchange itself formally halts trading and rolls back all recorded trading activity due to a sudden spike in volatility.
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