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Rolling-Stack Hedge


A hedging technique (also a type of leapfrogging) which is used to provide cover for a series of exposures such as those consisting of resetting periods (think of an interest rate swap). Each individual exposure, within a series of exposures, is covered for its own period. In a rolling-stack hedge, only the nearest exposure is accounted for at inception, making the basis risk of that exposure very low. The nearest month contract is used to hedge the entire exposure.

This involves using the relatively high liquidity available in exchange-traded futures and options to keep on having an ongoing, short-term risk-offsetting position by closing near-month contracts and entering into far-month contracts.

It is also referred to as stack hedge (stack hedging) or rolling hedge (rolling hedging).



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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