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Futures hedges can be rolled forward from a nearby to a more distant delivery month and can be rolled backwards from a distant to a
Futures hedges can be rolled forward from a nearby to a more distant delivery month and can 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 backwardrolling 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.
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