An options-pricing approach to forecasting the French presidential election

Fry, John; Hastings, Thomas; Binner, Jane

Abstract

A subjective probability argument suggests vote-share estimates from polling companies can be interpreted as market prices. The corresponding election constitutes the price at a known future date. This makes an options-pricing approach particularly attractive. In this setting vote-share estimates, the probability of winning the popular vote and the second-round qualification probability all have a convenient representation in terms of binary options prices. In this paper we develop options-pricing, vote-transfer and Monte Carlo methods to forecast the French presidential election. The approach fits well with the proportional and regimented two-stage nature of the French election but applies more broadly. Unusually for a French system characterised by uncertainty and constant flux the incumbent President Macron appears in a dominant position throughout the 2017 and 2022 elections albeit with no chance of an outright win in the first round.

Citation

Fry, J., Hastings, T., & Binner, J. (online). An options-pricing approach to forecasting the French presidential election. Journal of the Operational Research Society, https://doi.org/10.1080/01605682.2024.2334339

• Journal Article Type: Article
• Acceptance Date: Mar 11, 2024
• Online Publication Date: Apr 8, 2024
• Deposit Date: Mar 11, 2024
• Publicly Available Date: Apr 9, 2025
• Journal: Journal of the Operational Research Society
• Print ISSN: 0160-5682
• Publisher: Taylor and Francis
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1080/01605682.2024.2334339
• Keywords: Forecasting; Finance; OR in societal problem analysis; Options Pricing; Politics
• Public URL: https://hull-repository.worktribe.com/output/4586538