anonymous oddsman

Ladbroke's (celebrating Halloween, probably) again offers
50:1 odds on Perot! Clinton and Browne are still not being
offered. Recalling last Saturday's Dole odds; they were
7:1 at Ladbroke's, and 8:1 at William Hill. The betters at
Ladbroke's (who get a somewhat worse deal, it seems) are
bullish on Dole, while those at William Hill are now a bit
more bearish on the old man, so the numbers diverge in the
final stretch of the horserace.

              Prices @ 09:21 GMT Sat 2nd Nov 96
        +---------+----------------+----------------+
        |         |  Ladbroke's    | William Hill   |
        +---------+----------------+----------------+
        | Clinton | Not currently offered by either |
        | Dole    |     6:1        |     10:1       |
        | Perot   | 50:1 (again)   |    500:1 (!)   |
        | Browne  | Not currently offered by either |
        +---------+----------------+----------------+
        | Phone   | +44-800-524524 | +44-800-444040 |
        | Numbers:|                |                |
        +---------+----------------+----------------+

As for the animal suspected of *really* running the U.S.A,
"Socks" appears to be successfully defending his territory
against "Leader." Full of confidence, she is now running
virtual tours of the White House, kids!

http://www.whitehouse.gov/WH/kids/html/home.html

Meanwhile "Leader" whimpers at

http://www.firstdog.com/

(Wow, his own domain!) Perot (obviously) needs no pet, and
the oddsman is unaware of any public photos of Libertarian
candidate Browne's cats, much less their names. A serious
campaign.

Our roving reporter in the UK also thinks that there *must*
be significance in the fact that our Presidential election
is being held on the anniversary of the day that Guy Fawkes
attempted to blow up his Houses of Parliament, together
with all the politicians within. He, as usual, will celebrate
the event with bonfires and fireworks.

Mailmasher.com appears to be down, apologies to any of you
who wished to correspond personally with the oddsman there.
Hopefully, oddsman@mailmasher.com will come back soon.
anonymous oddsman

"Demeaning the integrity of the U.S. Presidential election process
for you on a regular basis, at no charge."

John Anonymous MacDonald wrote:
> 
> Ladbroke's (celebrating Halloween, probably) again offers
> 50:1 odds on Perot! Clinton and Browne are still not being
> offered. Recalling last Saturday's Dole odds; they were
> 7:1 at Ladbroke's, and 8:1 at William Hill. The betters at
> Ladbroke's (who get a somewhat worse deal, it seems) are
> bullish on Dole, while those at William Hill are now a bit
> more bearish on the old man, so the numbers diverge in the
> final stretch of the horserace.
> 
>               Prices @ 09:21 GMT Sat 2nd Nov 96
>         +---------+----------------+----------------+
>         |         |  Ladbroke's    | William Hill   |
>         +---------+----------------+----------------+
>         | Clinton | Not currently offered by either |
>         | Dole    |     6:1        |     10:1       |

Whew! They are wide open for arbitrage! Suppose that at Ladbroke I sell
an obligation to pay $6 if Dole wins (they are apparently valuing it for
this much), collecting $1. At the same time, to hedge my exposure, I go
to "William Hill", and purchase their obligation to pay _me_ $10 if Bob
Dole wins, paying the $1 bill that I just got at Ladbroke's.

If bob dole loses, I lose nothing. If he wins, I make $4 out of air.

I wonder why the beting markets are so imperfect.


have fun

igor



>         | Perot   | 50:1 (again)   |    500:1 (!)   |
>         | Browne  | Not currently offered by either |
>         +---------+----------------+----------------+
>         | Phone   | +44-800-524524 | +44-800-444040 |
>         | Numbers:|                |                |
>         +---------+----------------+----------------+
> 
> As for the animal suspected of *really* running the U.S.A,
> "Socks" appears to be successfully defending his territory
> against "Leader." Full of confidence, she is now running
> virtual tours of the White House, kids!
> 
> http://www.whitehouse.gov/WH/kids/html/home.html
> 
> Meanwhile "Leader" whimpers at
> 
> http://www.firstdog.com/
> 
> (Wow, his own domain!) Perot (obviously) needs no pet, and
> the oddsman is unaware of any public photos of Libertarian
> candidate Browne's cats, much less their names. A serious
> campaign.
> 
> Our roving reporter in the UK also thinks that there *must*
> be significance in the fact that our Presidential election
> is being held on the anniversary of the day that Guy Fawkes
> attempted to blow up his Houses of Parliament, together
> with all the politicians within. He, as usual, will celebrate
> the event with bonfires and fireworks.
> 
> Mailmasher.com appears to be down, apologies to any of you
> who wished to correspond personally with the oddsman there.
> Hopefully, oddsman@mailmasher.com will come back soon.
> anonymous oddsman
> 
> "Demeaning the integrity of the U.S. Presidential election process
> for you on a regular basis, at no charge."
> 
> 
> 



	- Igor.

Igor Chudov @ home wrote:
> 
> John Anonymous MacDonald wrote:
> > 
> > Ladbroke's (celebrating Halloween, probably) again offers
> > 50:1 odds on Perot! Clinton and Browne are still not being
> > offered. Recalling last Saturday's Dole odds; they were
> > 7:1 at Ladbroke's, and 8:1 at William Hill. The betters at
> > Ladbroke's (who get a somewhat worse deal, it seems) are
> > bullish on Dole, while those at William Hill are now a bit
> > more bearish on the old man, so the numbers diverge in the
> > final stretch of the horserace.
> > 
> >               Prices @ 09:21 GMT Sat 2nd Nov 96
> >         +---------+----------------+----------------+
> >         |         |  Ladbroke's    | William Hill   |
> >         +---------+----------------+----------------+
> >         | Clinton | Not currently offered by either |
> >         | Dole    |     6:1        |     10:1       |
> 
> Whew! They are wide open for arbitrage! Suppose that at Ladbroke I sell
> an obligation to pay $6 if Dole wins (they are apparently valuing it for
> this much), collecting $1. At the same time, to hedge my exposure, I go
> to "William Hill", and purchase their obligation to pay _me_ $10 if Bob
> Dole wins, paying the $1 bill that I just got at Ladbroke's.
> 
> If bob dole loses, I lose nothing. If he wins, I make $4 out of air.
> 
> I wonder why the beting markets are so imperfect.
> 
> 
> have fun
> 
> igor

Homework: guess how should I trade so that I lock in _definite_ profit
before elections such that I am fully hedged against any outcome of the
election.

igor

On Sat, 2 Nov 1996 ichudov@algebra.com wrote:

> >         | Clinton | Not currently offered by either |
> >         | Dole    |     6:1        |     10:1       |
> 
> Whew! They are wide open for arbitrage! Suppose that at Ladbroke I sell
> an obligation to pay $6 if Dole wins (they are apparently valuing it for
> this much), collecting $1. At the same time, to hedge my exposure, I go
> to "William Hill", and purchase their obligation to pay _me_ $10 if Bob
> Dole wins, paying the $1 bill that I just got at Ladbroke's.

The problem is that Ladbroke won't take your offer, they don't
work that way. If they wanted to insure against a Dole victory
they would place some of the money they got from betters on Dole
at William Hill, at 10:1, instead of taking your offer at 6:1.
But probably they get too few bets on Dole to bother with insurance;
they do take risks. Another way of insuring themselves would have
been to offer 11/10 or something on Clinton but obviously they
don't feel they have to do that.

Asgaard

Asgaard wrote:
> 
> On Sat, 2 Nov 1996 ichudov@algebra.com wrote:
> 
> > >         | Clinton | Not currently offered by either |
> > >         | Dole    |     6:1        |     10:1       |
> > 
> > Whew! They are wide open for arbitrage! Suppose that at Ladbroke I sell

I meant "I go to Ladbroke and sell it to people hanging out there" 
-- see below.

> > an obligation to pay $6 if Dole wins (they are apparently valuing it for
> > this much), collecting $1. At the same time, to hedge my exposure, I go
> > to "William Hill", and purchase their obligation to pay _me_ $10 if Bob
> > Dole wins, paying the $1 bill that I just got at Ladbroke's.
> 
> The problem is that Ladbroke won't take your offer, they don't
> work that way. If they wanted to insure against a Dole victory
> they would place some of the money they got from betters on Dole
> at William Hill, at 10:1, instead of taking your offer at 6:1.
> But probably they get too few bets on Dole to bother with insurance;
> they do take risks. Another way of insuring themselves would have
> been to offer 11/10 or something on Clinton but obviously they
> don't feel they have to do that.

Seems like you see the problem yourself: obviously Ladbroke gets a free
ride since they can simply insure themselves by placing offsetting
bets at William Hill.

My argument, however, does not require one of the houses (Ladbroke's)
accepts the reverse bets (which pay me money of Clinton wins). My
argument runs like this: There are persons hanging around Landbroke who
apparently think that if they give Landbroke $1 in return for the
promise to pay them $6 if Dole wins, they get a good deal.

It is these people together with "William Hill" whom we exploit.

What I do is the following: I go to the Ladbroke's and offer to pay the
gamblers not $6, but $6.01 if Dole wins. Being somewhat rational, these
gamblers see a better deal than Ladbroke's offers, and give me their $1
bills. This is very simple.

I take their $1 bills and run to "William Hill", where I take another
side of the bet. 

If Clinton wins, I get nothing and lose nothing. If Dole wins, I gain
$3.99 on every bet that these suckers agreed to make with me.

That was the essense of arbitrage that I propose.

Again, as I said, there is a way to make sure money on this 
situation, that is, to make money even if Klinton wins.

The arbitrage strategy is the following: as before, I go to the
Ladbroke's and offer to pay them not $6, but $6.01 if Dole wins.
I take their $1 bills and go to "William Hill". I buy, however, LESS
bets than dollar bills that I received. In particular, I buy 
$6.01 / $10.00 bets for each dollar that I receive.

The remaining money $1(1-6.01/10) I simply take to my bank. This money
is mine: if Clinton wins, nobody gets anything; if Dole wins, I get
exactly enough money from "William Hill" to pay off my debts to the
gamblers at Ladbroke's.

Of course, if gamblers could compare prices and choose gambling houses
easily, no one would ever buy these bets from Ladbroke (unless they are
crazy).

This situation means that there is some market imperfection that 
does not allow arbitrage. It is not clear, though, what this
imperfection is.

It got me thinking about the following: someone oughtta make money by
selling "political derivative securities". For example, a bank could
issue Pro-Dole option contracts with a promise to pay the holder of the
contract $1000 if Bob Dole wins elections. These contracts could be
traded at, for example, CBOE, just as any other standard derivative
securities.

I see no real difference between a stock serving as an underlying
security, and an outcome of a political event serving as an underlying
security. There can be legitimate reasons for businesses to hold these
"political derivative securities". For example, businesses may hold them
to hedge their exposure to predictable changes in interest rates that
depend on the election outcomes.

Has this been done?

        - Igor.

On Sun, 3 Nov 1996 ichudov@algebra.com wrote:

> What I do is the following: I go to the Ladbroke's and offer to pay the
> gamblers not $6, but $6.01 if Dole wins. Being somewhat rational, these
> gamblers see a better deal than Ladbroke's offers, and give me their $1
> bills. This is very simple.

In theory very simple indeed. But then there's the matter of trust
(they know Ladbroke will probably be there after the election, but
will you?) and market infringement (will Ladbroke's security allow
you to hang around?) and such practical things. But I understand
that you are more interested in the theoretic basis for arbitrage.
I was talking more about the real world.

> I take their $1 bills and go to "William Hill". I buy, however, LESS
> bets than dollar bills that I received. In particular, I buy 
> $6.01 / $10.00 bets for each dollar that I receive.

Gambling institutions do these kind of insurance transactions all
the time, of course. But many of them don't work only with small
safe margins (changing the odds according to incoming bets pro/con
so that exactly some percentage will always stay in their pockets
after taxes) because they are themselves gamblers.

> Of course, if gamblers could compare prices and choose gambling houses
> easily, no one would ever buy these bets from Ladbroke (unless they are
> crazy).

Some will anyway, out of convenience, if a Ladbroke office happens to
be just around the corner. But those daring to give the highest odds,
and in this case without insuring themselves with counter-odds,
with take most of the customers and most of the profits if Clinton
wins (and the losses if Dole wins).

> This situation means that there is some market imperfection that 
> does not allow arbitrage. It is not clear, though, what this
> imperfection is.

In part for practical reasons, as stated above. That will change
when this kind of betting moves online, with digital cash (if
allowed) or digital traceable money (betters will accept some
degree of taxation). Then all the opportunities hitherto reserved for
gamblers on the stock, commodity and monetary markets will become
available to the more profane betters on sports, horce racing and
elections: derivates, futures etc.

And more. Some of the more esoteric cryptographic protocols will become
of practical value in the gambling business. Like you could bet $n
that Dole will win, prospective takers of the bet could make secret
offers and the highest bidder would get your bet at the next to
highest offered odds, without anybody's offer being revealed. You
might have committed to take that offer, or you might not - different
gambling styles. An all against all situation, serviced by a trusted
entity with committed bits in escrow, living off a very small margin
on all transactions.

Asgaard