It’s not just the stock market, it’s true for the bond market, the derivatives market, the commodities market… financial markets, a category which includes prediction markets, cannot function effectively with counterparty risk anything like 5%.
Hmm, maybe I am just failing to model something here. Isn’t really the only thing that happens when you have 5% randomly-distributed counterparty risk that you end up with like 5% spreads? That seems fine to me.
To be clear, I don’t feel very confident here, I just don’t really understand why you can’t just price in counterparty risk and then maybe end up with some bigger spreads (which I do agree is sad for prediction markets, but for most markets I don’t mind the spread that much).
Hmm, maybe I am just failing to model something here. Isn’t really the only thing that happens when you have 5% randomly-distributed counterparty risk that you end up with like 5% spreads? That seems fine to me.
To be clear, I don’t feel very confident here, I just don’t really understand why you can’t just price in counterparty risk and then maybe end up with some bigger spreads (which I do agree is sad for prediction markets, but for most markets I don’t mind the spread that much).