Barrel Strength

One of the primary factors inhibiting McCain’s campaign is the issue of age. The betting markets are actively reflecting this concern. On intrade.com the “Barack Obama to win 2008 Presidential Election” contract is trading for 61.3 and “John McCain to win 2008 Presidential Election” contract is trading for 34.8. These contracts will go to 0 in case of a loss and 100 in case of a win.

Given that the Obama contract is trading at 61.3, the corresponding McCain contract should be trading at 38.7, i.e 100-61.3, if contracts are fairly priced. The fact that the McCain contract is trading under the defined “fair price”, and has done so consistently since Obama essentially clinched the nomination, is a reflection of health concerns in the election betting market. The market is pricing in 3.9pts, i.e. 38.7-34.8, as the McCain health risk premium or it might be a case of Obama benefiting from the “Audacity of Vacuity“. It will be interesting to watch how this risk premium varies and if it diminishes completely.