Conditional claims are bought and sold with contracts of the underlying claim rather than with cash. Prices are quoted in units of the underlying symbol unless otherwise noted (at least it should work that way; I'm not sure whether it is consistent about it yet).
If you don't hold the appropriate contracts of the underlying claim when you trade a conditonal claim, the system will create them as needed by purchasing pairs (units of YES and NO contracts) of the underlying claim.
If the underlying claim is settled before the dependent claim, contracts of the conditional claim which are conditioned on the winning side of the underlying claim are converted into unconditional claims. Conditional claims conditioned on the losing side become worthless, and those contracts will disappear. For example, if X is judged true, Y|X contracts become Y contracts, and Y~X contracts become worthless.
While this approach may make it harder to understand what will happen when you trade a conditional claim than with claims of the form "event X happens and event Y happens", it makes it easier to relate the prices to probabilities of individual events.
Let's suppose we have a claim GORE that says Al Gore will be elected president, a claim WAR that says U.S. soldiers will die in combat, and conditional claims WAR|GORE and WAR~GORE. Here are examples of what would happen if you start without any holdings in any of these claims, and buy or sell one of the conditional claims at a price of 0.65 GORE contracts or NOT GORE contracts.
|Action||New GORE holdings||Change in cash holdings||Profit/Loss (in Quatloos) from trade for different settlements|
|Gore elected||Gore not elected|
|Buy 1 WAR|GORE||-0.65 GORE (0.65 GORE NOs)||-0.65 Quatloos||soldiers die in combat||+0.35||0|
|soldiers don't die in combat||-0.65||0|
|Sell 1 WAR|GORE||0.35 GORE||-0.35 Quatloos||soldiers die in combat||-0.35||0|
|soldiers don't die in combat||+0.65||0|
|Buy 1 WAR~GORE||0.65 GORE||-0.65 Quatloos||soldiers die in combat||0||+0.35|
|soldiers don't die in combat||0||-0.65|
|Sell 1 WAR~GORE||-0.35 GORE (0.35 GORE NOs)||-0.35 Quatloos||soldiers die in combat||0||-0.35|
|soldiers don't die in combat||0||+0.65|
Currently claims can only be conditional on unconditional Boolean claims. I don't know whether support will be added for claims conditional on non-Boolean claim types or claims conditional on conditional claims.
Edit this entry / Log info / Last changed on Wed Dec 22 14:02:01 1999 by Peter McCluskey
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