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An options-pricing approach to election prediction
Fry, John Burke, M.
Fry, John
Burke, M.
Publication Date
2020-10
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© 2020 Taylor & Francis. This is an Author's Original Manuscript of an article published by Taylor & Francis in Quantitative Finance in Oct 2020, available online at https://doi.org/10.1080/14697688.2020.1757136.
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openAccess
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10/04/2020
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Abstract
The link between finance and politics (especially opinion polling) is interesting in both theoretical and empirical terms. Inter alia the election date corresponds to the effective price of an underlying at a known future date. This renders a derivative pricing approach appropriate and, ultimately, to a simplification of the approach suggested by Taleb (2018). Thus, we use an options-pricing approach to predict vote share. Rather than systematic bias in polls forecasting errors appear chiefly due to the mode of extracting election outcomes from the share of the vote. In the 2016 US election polling results put the Republicans ahead in the electoral college from July 2016 onwards. In the 2017 UK general election, though set to be the largest party, a Conservative majority was far from certain.
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Accepted manuscript
Citation
Fry J and Burke M (2020) An options-pricing approach to election prediction. Quantitative Finance. 20(10): 1583-1589.
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Article