Friday, 7 November 2008

PM.National is underpriced

On the iPredict blog Eric Crampton gives us his Morning Update and he's arguing that PM.National is underpriced.
At current prices in the VS markets, and subbing in Ron Mark's chances in his electorate rather than Peters's chances (as either is sufficient for NZ First to return), PM.National is currently substantially underpriced. Only two unlikely potential Parliamentary configurations yield PM.National probabilities under 80%: if NZ First returns and the Maori Party supports Labour, PM.National would be at 75%; if ACT also doesn't return, that probability drops to 19%. The most likely scenario is:
National 60
UF 1
Maori 5
NZ First 0
Labour 41
Green 10
Progressive 1

The above gives us a 122 seat Parliament and a 65 seat Act-National-UF coalition governing handily, with or without Maori Party support.

Unless prices elsewhere in the system are out, and they don't look out to me, National's a strong buy at anything less than 90%. The spreadsheet's telling me 97.5% chance of a National coalition government, but I'm not confident enough in it to go above 90. Full disclosure: I'm current high bidder on PM.National and have substantial position long PM.National and short PM.Labour.
Right now PM.National is trading at around 0.84 so if Eric's spreadsheet is right then it is still underpriced. So there is money to be made. If the iPredict prices are anywhere near right then a change of government is very likely. I should say that I too am long in PM.National.

1 comment:

Crampton said...

Do be sure to run the model again with current prices to be sure....