Economic Derivatives Markets-New Opportunities for Individual Investors:
A Research Agenda
DOI:
https://doi.org/10.61190/fsr.v16i2.4881Keywords:
Binary option, Factor model, Prediction markets, Economic derivativesAbstract
Economic derivatives markets offer exciting new risk diversification opportunities for individual investors. Mostly in the form of small denomination binary options, these markets trade contracts on consumer inflation, currencies, median real estate prices, gas at the pump, and retail-oriented indica tors. The research into the role of these markets for individual investors is in its infancy. This paper provides a review of the current state of knowledge and sketch out three broad avenues of further worthwhile inquiry: economic derivatives as alternatives to traditional stock indexing, the viability of the markets in light of limited trading motives and small probabilities, and modeling difficulties inherent in pricing unhedgeable underlying events.
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