Illustrate how backward-rolling hedge works

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Reference no: EM131588017

Futures hedges can be rolled forward (from a nearby to a more distant delivery month) and saw examples of how rolling hedges work. We also mentioned that futures hedges can also be rolled backwards (from a distant to a nearby delivery month). Considering a grain producer who uses futures contracts to sell his grain, (i) discuss why this producer would roll his hedge backward and (ii) create and explain two numerical examples to illustrate how a “backward-rolling hedge” works. One example should address a case when futures prices are going up and the other example should address a case when futures prices are going down.

Reference no: EM131588017

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