Friday, February 2, 2007

Super Bowl and Complete Market

The only places on this planet that most closely resemble an ideal "Complete Market" are probably inside the investment firms, where any form of uncertainty can be assigned a price --- like the outcome of the superbowl: a "fair game" is quickly developed in the research department, the "speculators" would then rush in, some even with "margins". Soon enough, the quant-types would figure out the expected return and volatility for each of the investor base on historical data. Had there been a longer investment horizon, I'm sure various types of derivatives would have been in-place, think of exotic options and total return swaps, for example. These would come handy for the teams themselves to hedge risks --- even if they lose the game, they can still come home with a gain on investment.