How do prediction markets account for interest rates? I feel like I should be willing to pay no more than ~96 cents for a contract that will definitely resolve to a dollar in a year. Who puts up the other 4 cents?
Interest on open positions. Polymarket pays about 4.00% annualized holding rewards on eligible markets/positions (not all). Kalshi pays about 3.25% APY on cash plus open positions (collateral).
The usual thing is that the market ends up around $0.95 for things like that, if the actors are all solid investors. It only takes one overly enthusiastic yes buyer to break that ceiling, the smart money won't "correct" it down to $0.95
There's another idea, which is make contacts that pay out in shares of an ETF, but I haven't seen this idea put into practice
pants2|1 month ago
Edit to add that on non eligible markets your theory is correct, for example: https://polymarket.com/event/will-jesus-christ-return-before...
computerphage|1 month ago
There's another idea, which is make contacts that pay out in shares of an ETF, but I haven't seen this idea put into practice
lowbatt|1 month ago
samvimes|1 month ago