Wednesday, April 04, 2007
Arbitrage opportunity
We talked about the arbitrage opportunity for presidential election in class. I will explain how we can make profit from arbitrage. First, I bet 41 cents on Hillary Clinton to win presidential election on Iowa electronic market. If she wins the election, I will win 1 dollar. Next, I bet 48 cents on Hillary Clinton to lose the election on Intrade market. If she loses, I will win 1 dollar. The amount I pay to play the game is 41 + 48 = 89 cents. I will make 11 cents without the risk of Hillary Clinton wins or loses.
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1 comment:
I understand the computation part of this game, but one thing I don't understand is how they can you put value on certain candidate. For example, with stocks, you can draw stock values from companies' performances but with candidates, I thought it's kinda hard to predict who is doing better in relation to their price?
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