Journal of Risk

Bits, bets, and making book on an index

George S. Oldfield


This paper develops the concept of a superpool, a new way to create synthetic index derivative instruments. A superpool clarifies the links between index investments, insurance contracts, index derivatives, and index bets. In a superpool, equivalent risk-neutral probabilities are operational measures that are central to pricing and odds formation. A superpool also provides a way to offer index derivatives without the superpool itself matching the index. Moreover, gaming techniques lead to simple mechanisms for price or odds quotations. Finally, forward and futures superpools can be developed too.

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