iPredict on Mt Albert

iPredict has some Mt Albert stocks. They are its first conditional contracts where you balance up both the probability of someone being a candidate, and if they are a candidate what percentage of the votes they will get for their party. An explanation from their blog:

Specifically, we will run contracts that pay $0.01 for each percent of the vote won by National or Labour candidates in the by-election conditional on a specific candidate being selected.

For example, we will run a contract that pays $0.01 for each percent of the vote the National Party wins in the by-election conditional on Melissa Lee being the National candidate.

If Lee is not the National candidate the contract pays nothing.

The reason conditional contracts like this are valuable is that they provide a forecast of which candidate will maximise a party’s vote share before candidate selection has occurred. That tells the party who they ought to select.

The interpretation of the price of a conditional stock price in this context is as the product of a) the likelihood candidate X will be selected, and b) the party’s vote share given that candidate is selected.

For example, let’s say Candidate X’s objective chance (however defined) of winning the National candidacy for Mt Albert is 60%, and National’s vote share in Mt Albert if that Candidate X is selected is 45%. What should the conditional stock trade for? $0.6 x $0.45 = $0.27.

Now let’s look at their actual stocks. First they have a simple stock called MTA.LEE which is the probability Melissa Lee will be the National candidate. Before I purchased 200 shares, they were trading at 85.8c, so the market was saying an 86% chance Melissa would be the candidate.

Then we have MTA.LEE.NAT which is at 39c. You divide 39c by 86c to calculate the projceted vote for National if Lee is a candidate, which is 45%.

And MTA.LEE.LAB is also at 39c. So the market is saying (for now) that if Melisssa Lee stands for National, the result will be very very close.

They also have a MTA.TWYFORD. This is at 53c, reflecting greater uncertainity over the Labour nomination.