Auctions, Market Mechanisms and Their Applications. First International ICST Conference, AMMA 2009, Boston, MA, USA, May 8-9, 2009, Revised Selected Papers

Research Article

A Copula Function Approach to Infer Correlation in Prediction Markets

Download160 downloads
  • @INPROCEEDINGS{10.1007/978-3-642-03821-1_3,
        author={Agostino Capponi and Umberto Cherubini},
        title={A Copula Function Approach to Infer Correlation in Prediction Markets},
        proceedings={Auctions, Market Mechanisms and Their Applications. First International ICST Conference, AMMA 2009, Boston, MA, USA, May 8-9, 2009, Revised Selected Papers},
        proceedings_a={AMMA},
        year={2012},
        month={5},
        keywords={},
        doi={10.1007/978-3-642-03821-1_3}
    }
    
  • Agostino Capponi
    Umberto Cherubini
    Year: 2012
    A Copula Function Approach to Infer Correlation in Prediction Markets
    AMMA
    Springer
    DOI: 10.1007/978-3-642-03821-1_3
Agostino Capponi1,*, Umberto Cherubini2,*
  • 1: California Institute of Technology
  • 2: University of Bologna
*Contact email: acapponi@caltech.edu.edu, umberto.cherubini@unibo.it

Abstract

We propose the use of copula methods to recover the dependence structure between prediction markets. Copula methods are flexible tools to measure associations among probabilities because they encompass both linear and non linear relationship among variables. We apply the proposed methodology to three actual prediction markets, the Saddam Security, the market of oil spot 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.