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Chance of US Invading Iran?
sup, I don't know much about the markets
I am interested if for example, by looking at certain markets, we could predict the chances of a US invasion of Iran. This is just an example, I'm interested in the theory of predicting stuff here Are there certain stocks/commodities one would buy/sell to bet for or against an invasion happening in the next X years? It would seem if this is the case, you could look at the markets, and determine the chances of invasion by seeing what 'the line' has reached, by people who are putting huge amounts of money where their mouth is For example say oil futures for 6 months from now are trading at F (are they traded with 6 month delivery dates btw? What delivery dates are allowed to trade?) And further say that if America invades Iran in the next 6 months oil prices will go to on average (on average means more or less what the oil futures price now would become if we knew for sure we were invading Iran, assuming an efficient market) Y, and if if they don't, prices with go to on average Z Now, say we have the prices (or is it called premium or something?) of Short Calls on oil (do these exist?), with an exercise date in 6 months, and strike price k. So we have a function of the price, we'll call it R, in terms of k I reckon the negative derivative of R with respect to k evaluated at k=F should roughly give us the probability of America invading Iran in the next 6 months Does this make any sense? I can go into mathematical detail how I arrived at this conclusion if you want. If I asked you, to the best of your abilities, to find the chances of invasion in 6 months, how would you do it using prices from the markets? |
#2
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Re: Chance of US Invading Iran?
um, yeah I probably could have picked a better example
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#3
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Re: Chance of US Invading Iran?
[ QUOTE ]
Does this make any sense? [/ QUOTE ] No. The movement of the markets reflects a vast array of considerations, and you have no apriori way of determining the relative influence of the array of considerations in people's minds that collectively move the market. I don't think you can infer much quantitatively about one factor, without making a sweeping set of assumptions that are so tenuous that the whole enterprise is not much better than flat-out guessing. eastbay |
#4
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Re: Chance of US Invading Iran?
so it makes some sense?
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#5
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Re: Chance of US Invading Iran?
[ QUOTE ]
so it makes some sense? [/ QUOTE ] I didn't really read your math so I can't comment on the particulars, but if the markets were infinitely simpler, you could view them the same way you might use the lines in sports to predict winners, which is basically what you're trying to do here it would seem. If you are trying to do a math paper for a class here or something, I would choose that as your model instead. eastbay |
#6
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Re: Chance of US Invading Iran?
righto
it's just for my own curiosity, I am not in school [ QUOTE ] and you have no a priori way of determining the relative influence of the array of considerations in people's minds that collectively move the market. [/ QUOTE ] well, I was assuming an efficient market. Once again, I know little of the market, but wouldn't it be a pretty good guess that the EV of buying and holding oil futures would be very close to 8-9% growth or so, with a fairly predictable variance, and a pretty close to log-normal distribution? I am thinking maybe I could do a tad of research, get a reasonable guess as to what the variance is in oil futures, then simply add two log normal distributions (one for the case of invasion, one for no invasion), then see how much effect this has on my method of determining the probability. I could even leave the variance(s) as a variable to see what kind of effect the 'vast array of considerations' as you put it has on my method Would you happen to know if assuming a log-normal distribution on oil futures 6 months from now is a good idea? I would guess 6 months is long enough Another thing going for me is the 'noise' from the Y-peak in the pdf will have an opposite error effect as the noise around the Z-peak |
#7
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Re: Chance of US Invading Iran?
If all of Cheney's friends start buying huge amounts of Halliburton, there's a good chance we will invade Iran in the near future.
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#8
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Re: Chance of US Invading Iran?
yeah btw In the OP I more or less assumed the pdf will have two delta functions, one at Y [delta(Y)*P], one at Z [delta(Z)*(1-P)]
which is the same thing as saying they are log normal distributions with zero variance |
#9
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Re: Chance of US Invading Iran?
[ QUOTE ]
If all of Cheney's friends start buying huge amounts of Halliburton, there's a good chance we will invade Iran in the near future. [/ QUOTE ] [img]/images/graemlins/smile.gif[/img] |
#10
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Re: Chance of US Invading Iran?
[ QUOTE ]
righto it's just for my own curiosity, I am not in school [ QUOTE ] and you have no a priori way of determining the relative influence of the array of considerations in people's minds that collectively move the market. [/ QUOTE ] well, I was assuming an efficient market. [/ QUOTE ] This does not help. At all. eastbay |
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