crandles wrote:
I have fixed a couple of typos.
And as importantly, I hadn't actually looked carefully enough to see
that you were plotting a 2 year average!
I would have thought
that by now further acceleration was more likely than it being due to
an oscillation.
Any justification for this? What is the volatility of the 3 year trend
in the historic data?
(I'm sure you don't mean to dichotomize between a natural oscillation vs
forced response - in general, it is a combination of both.)
Now how would you phrase the claim on Foresight Exchange ( a play money
market)? Perhaps something like:
If the best fit line for 2006 and 2007 is greater than or equal to 0.02
per month the claim pays FX$1.00
if greater than or equal to 0.015 per month and less 0.02 pm then the
claim pays FX$0.80
if greater than or equal to 0.01 per month and less 0.015 pm then the
claim pays FX$0.60
if greater than or equal to 0.005 per month and less 0.01 pm then the
claim pays FX$0.40
if greater than or equal to 0 per month and less 0.005 pm then the
claim pays FX$0.20
if less than 0 the claim pays FX$0
What value would you expect such a claim to trade at?
I'd expect it to trade at 80 or so. Note that is not my estimate of the
fair price, but rather my answer to your question :-)
James
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