http://mercury-rac.disqus.com/enWed, 18 Jul 2007 04:47:24 -0000http://blog.mercury-rac.com/2007/07/10/setting-initial-conditions-for-prediction-markets/#comment-1941262<p>Thanks, alex.</p><p>That is a great aspect of the HSX markets; the MovieStocks are very easy for people to understand, but you also have StarBonds and these options (and more) for more sophisticated traders.</p><p>The constant "churn" of contracts is key in maintaining interest on an exchange.</p>Jed ChristiansenWed, 18 Jul 2007 04:47:24 -0000http://blog.mercury-rac.com/2007/07/10/setting-initial-conditions-for-prediction-markets/#comment-1941263<p>"...Again, the Hollywood Stock Exchange is a great example here as a trader can participate at any stage of a film’s creation, from pre-production all the way through to the first days and weeks at the box office. Since new films are out every week, there are always long-term and short-term contracts on which to speculate...."</p><p>That's correct Jed. By nature of the production process and the constant flow of new product being introduced, there are inherently always available long-term and short-term contracts. We augment this by adding call and put options relating specifically to a film's opening weekend. For example a call option speculates a film will have a higher box office result for its opening weekend than the option's strike price. A H$20 call has a strike price of H$20, and will delist at zero if the movie does not make $20 million or more during its opening weekend (typically that is Fri-Su). If the film makes more than $20 million it will cash out based on actual box office receipts minus the strike price; so say, for example a film made $25 million during the Fri-Su release weekend, the call would cash out at H$5.00 (H$25 - H$20). We also add other 'special securities' tied to season or other shorter-term industry events to further trader involvement in the Exchange. This combination of long-term and short-term propositions provides variety in game-play and further peaks trader interest in the nuances of a film's lifecycle. The same design method can be applied to prediction markets in other industries.</p>alexTue, 17 Jul 2007 17:00:38 -0000