We propose the use of copula methods to recover the dependence structure between prediction markets. Copula methods are flexible tools to measure association among probabilities because they encompass both linear and non linear relationships among variables. We apply the proposed methodology to three actual prediction markets, the Saddam security, the market of oil prices and the Saddameter. We find that the Saddam security is nearly independent of the oil market, while being highly correlated to the Saddameter. The results obtained appear to suggest that the Saddam Security prediction market may be noisy or overlooking some political factors which are instead considered by Saddameter and the oil market.
A.Capponi, U.Cherubini (2009). A Copula Function Approach to Infer Correlation in Prediction Markets. Berlin Heidelberg New York : Springer Verlag [10.1007/978-3-642-03821-1_3].
A Copula Function Approach to Infer Correlation in Prediction Markets
CHERUBINI, UMBERTO
2009
Abstract
We propose the use of copula methods to recover the dependence structure between prediction markets. Copula methods are flexible tools to measure association among probabilities because they encompass both linear and non linear relationships among variables. We apply the proposed methodology to three actual prediction markets, the Saddam security, the market of oil prices and the Saddameter. We find that the Saddam security is nearly independent of the oil market, while being highly correlated to the Saddameter. The results obtained appear to suggest that the Saddam Security prediction market may be noisy or overlooking some political factors which are instead considered by Saddameter and the oil market.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
