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An options-pricing approach to forecasting the US election

Author

Listed:
  • Fry, John
  • Bennett, Steve
  • Hastings, Thomas

Abstract

A subjective probability argument suggests vote-share estimates from polls 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. The approach works well for proportional systems. Here, we show how to adjust the approach for non-proportional first-past-the-post systems. We illustrate our approach with an application to the most recent 2020 and 2024 elections.

Suggested Citation

  • Fry, John & Bennett, Steve & Hastings, Thomas, 2025. "An options-pricing approach to forecasting the US election," Economics Letters, Elsevier, vol. 256(C).
    • Handle: RePEc:eee:ecolet:v:256:y:2025:i:c:s0165176525004690
    DOI: 10.1016/j.econlet.2025.112632
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    References listed on IDEAS

    as
    1. Lauderdale, Benjamin E. & Bailey, Delia & Blumenau, Jack & Rivers, Douglas, 2020. "Model-based pre-election polling for national and sub-national outcomes in the US and UK," International Journal of Forecasting, Elsevier, vol. 36(2), pages 399-413.
    2. Ahmed, Shaker & Hasan, Mostafa M. & Hossain, Ashrafee T. & Saadi, Samir, 2025. "The comeback effect: Market responses to Trump's 2024 election victory," Economics Letters, Elsevier, vol. 247(C).
    3. Nassim Nicholas Taleb, 2018. "Election predictions as martingales: an arbitrage approach," Quantitative Finance, Taylor & Francis Journals, vol. 18(1), pages 1-5, January.
    4. John Fry & Thomas Hastings & Jane Binner, 2025. "An options-pricing approach to forecasting the French presidential election," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 76(1), pages 167-179, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

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    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G1 - Financial Economics - - General Financial Markets

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