BCI-AV# Bliss-character / Bliss. In this grim dystopian future, where privacy is dead and a totalitarian State controls every aspect of life, you can still choose to cling to your humanity and empathize with others!
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To your tenants, you are a government-installed Landlord in a totalitarian State. However, that is simply a facade that hides your real mission: to covertly watch your tenants. You must BUG their apartments while they're away, SEARCH their belongings for anything that can threaten the authority of the State, PROFILE them for your superiors and REPORT anyone capable of violating the laws.Remember: You are just a cog in a totalitarian machine – a cog that has been given the power to destroy the privacy of any person. Will you pass this test of power?
A system and method for defining, structuring, and trading political event contracts is disclosed that implement a systematic process for defining political event contracts. The systematic process comprises a rigorous taxonomy of risk event classes that delimit the types of contracts to be defined. An event relevance scoring mechanism determines whether a derivative instrument embodying a specified event is economically warranted and useful to the marketplace as a mechanism for hedging risks not easily addressed through other market tools. The disclosed apparatus further comprises apparatus for modeling the value of a specified political event contract that captures both rational and intuitive analysis about an event using criteria based decision trees to provide highly structured calculation of relative probabilities. The tree components are weighted and compared by an analyst or other user to determine probabilities for various alternative outcomes to a specified political event. BACKGROUND OF THE INVENTIONPolitical event contracts are typically bilateral financial agreements pursuant to which one party agrees to pay a second party a fixed sum of money in the event that a triggering political event specified in the contract occurs.
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For example, the first party may agree to pay the second party one thousand dollars ($1000) in the event that a specified election is won by a specified candidate. If the specified candidate prevails in the election, the contract is said to settle at one thousand dollars ($1000) and the first party pays that amount to the second party. If, by contrast, the candidate loses the election, the contract is said to settle at zero dollars ($0) and no payment is made by the first party to the second party.Once a political event contract is defined, it may be listed on an exchange and traded by persons or entities wishing to hedge against risks that they encounter in connection with their primary activities which correlate to the underlying event used to define the contract. For example, a company doing significant business in a specified foreign country may wish to hedge against the risk that its business will decrease if there is a military coup in that foreign country. If a political event contract is available that pays one thousand dollars ($1000) in the event of such a military coup, the company can hedge as much or as little of the risk it perceives from the coup by purchasing as many contracts in the market as it deems sufficient or appropriate.A market for political event contracts may also include speculators.
Speculators are market participants who try to profit from buying and selling contracts by anticipating future price movements. Speculators benefit such a market by assuming price risk and adding depth and liquidity to the market.Political event contracts are today listed and traded on a number of internet marketplaces such as on the internet marketplace operated at www.intrade.com. The intrade marketplace describes itself as an exchange at which traders may express a view on a wide variety of world events by buying and selling event contracts at published prices. Contracts on the intrade exchange are divided into six event categories: politics, entertainment, financial indicators, weather, current events, and legal affairs. Further information concerning the intrade exchange is available at the company's website address above.In the United States, the operation of marketplaces or exchanges such as that provided by intrade raises significant legal and regulatory concerns. In May 2008, the Commodity Futures Trading Commission (CFTC) solicited public comments on the appropriate regulatory treatment for event contracts. 25669-74 (May 7, 2008).
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One significant concern voiced by the CFTC was how to address the potential gaming aspects of some contracts which may not satisfy any real economic purpose, but instead merely provide a mechanism for wagering on events of general interest. Listing of such contracts on financial exchanges could convert such exchanges to surrogate gambling venues counter to public policy.In addition to these regulatory concerns, defining and trading political event contracts on an established financial exchange in the United States present certain practical problems.
For example, because the number of potential political events from around the world that can be used as the basis for defining a political event contract is immense, it is difficult to determine which particular events should be selected to maximize the economic value of the contract and its use as a hedging vehicle by market participants. Contracts that do not provide sufficient economic value as a hedging mechanism are not likely to attract significant liquidity, making such contracts less viable and ultimately less profitable for the listing exchange.There is therefore a need in the art for a system and method for defining, structuring, and trading political event contracts that are of significant economic value so as to maximize trading in the contracts and the likelihood that they will receive regulatory approval for trading on regulated exchanges, rather than being deemed to represent simple gambling. SUMMARY OF THE INVENTIONA system and method for defining, structuring, and trading political event contracts is disclosed. The system and method implement a systematic process for defining political event contracts that provide a hedging or insurance alternative for political events with significant and complex impacts on investors and reflect more than mere speculation. In a preferred embodiment, the systematic process comprises a rigorous taxonomy of risk event classes that delimit the types of contracts to be defined.Apparatus for implementing the systematic process of the present invention is also disclosed. In a preferred embodiment, this apparatus comprises an event relevance scoring mechanism to determine whether a derivative instrument embodying a specified event is economically warranted and useful to the marketplace as a mechanism for hedging risks not easily addressed through other market tools.The disclosed apparatus further comprises apparatus for modeling the value of a specified political event contract.
In a preferred embodiment, the modeling captures both rational and intuitive analysis about an event using criteria based decision trees to provide highly structured calculation of relative probabilities. The tree components are weighted and compared by an analyst or other user to determine probabilities for various alternative outcomes to a specified political event.In one aspect, the present invention is directed to a computer implemented system for defining and structuring political event contracts, comprising an event relevant scoring mechanism. In another aspect, the event relevant scoring mechanism is adapted to evaluate event proposals submitted by an analyst to measure the market relevance of the event proposals. In another aspect, the event relevant scoring mechanism is adapted to determine whether: (i) an event proposal is part of an event class typology set; (ii) there exists political risk insurance for the event that is the subject of the event proposal; and (iii) the event that is the subject of the event proposal is hedgeable by an existing financial product.In another aspect, the system is adapted to reject an event proposal where the event that is the subject of the event proposal is not part of the event class typology set. In yet another aspect, the system is adapted to accept the event for further definition and structuring where there exists political risk insurance for the event that is the subject of the event proposal.
In yet another aspect, the system is adapted to accept the event for further definition and structuring where the subject of the event proposal is hedgeable by an existing financial product.In another aspect, the event relevant scoring mechanism comprises a scoring component adapted to calculate a total impact score for a proposed political event reflecting the economic significance of the event. In yet another aspect, the total impact score is determined as a function of one or more impact values and one or more geographic values. In yet another aspect, the system is adapted to reject an event proposal where the total impact score fails to exceed a predetermined threshold and accept the event for further definition and structuring where the total impact score exceeds a predetermined threshold.In another aspect, the system comprises an event definition component adapted to maintain event definition information. The computer implemented system of claim 1, wherein the event relevant scoring mechanism is further configured to determine whether the proposed event is hedgeable by an existing financial product, and wherein the system is configured to continue processing the event proposal where the proposed event is not hedgeable by an existing simple financial product.
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January 2023
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