Numeraire Dependence in Risk-Neutral Probabilities of Event Outcomes

Publikation: Bidrag til tidsskriftTidsskriftartikelfagfællebedømt

Dokumenter

For most non-financial events, risk-neutral outcome probabilities are identical across numeraire currencies. Some events, however, such as elections or referendums, may have an impact on exchange rates. This implies numeraire dependence in risk-neutral outcome probabilities, which leads to different state prices for affected currency pairs. If betting odds available to punters do not reflect these differences, this may give rise to (approximate) arbitrage opportunities. Despite the sizable risk this creates, odds quoted by bookmakers seem to ignore this effect.
OriginalsprogEngelsk
TidsskriftJournal of Derivatives
Vol/bind26
Udgave nummer4
Sider (fra-til)128-143
ISSN1074-1240
DOI
StatusUdgivet - 2019

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