On October 26th, Dr. Wang gave Franken a 91% chance of winning the Minnesota senate race based on recent polls. The IEM didn’t give Franken close to these odds, so on the 27th, I took my arbitrage earnings and placed a Kelly bet on a 91% chance of Franken winning. I even managed to make a few cents as a market maker while holding this position.
However, soon after that, more polls from Minnesota came in that placed Coleman ahead in the Senate Race. Dr. Wang didn’t have current Senate predictions, so on the 30th I got the latest numbers from Mr. Shor, who gave Franken a 25% chance of winning. I switched my position to Coleman with a 75% chance of winning.
Then more polls came out putting Franken ahead again. I adjusted my position again, and ultimately bet on Franken with a 66% chance of winning. My total purchases at election day were:
|Bundle (all claims)||-51||$51|
The net result is that was 42 coupons for Franken, 5 coupons for Coleman, for a total cost of $43.066. All the waffling back and forth between Franken and Coleman means that even if Franken won, I wouldn’t entirely recover my costs.
The race between Franken and Coleman is close. One day after the election, with over 2.4 million votes casts, Coleman lead by only about 700 votes. This is well with the range of a mandatory recount. My Franken coupons were not worthless yet.
I was going to hold onto my coupons, until I reviewed the prospectus for this market.
For purposes of determining liquidation values, we will use the vote counts declared final and reported by the Minnesota Secretary of State at their website. If vote counts are not declared final by Friday of election week, we will use Friday’s vote counts to liquidated contracts. If vote counts are not posted at the Minnesota Secretary of State website by Friday, midnight, of election week, we will use the vote counts last reported in the New York Times.
I figured there was little chance that Franken would beat Coleman by Friday. So I sold my Franken coupons for $5.04. As Friday approached, I bought more and more Coleman coupons at outrageously cheap prices. I bought 43 Coleman coupons for $32.299. I can only assume that these people didn’t know that the market was going to close on Friday.
In the end, I lost only $22.325 on this little venture. If I had to do it all over, I might even do it again.