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Analysts
often use prices from various markets as indicators of potential
events. The use of petroleum futures contract prices by analysts
of the Middle East is a classic example. The Policy Analysis
Market (PAM) refines this approach by trading futures contracts
that deal with underlying fundamentals of relevance to the Middle
East. Initially, PAM will focus on the economic, civil, and military
futures of Egypt, Jordan, Iran, Iraq, Israel, Saudi Arabia, Syria,
and Turkey and the impact of U.S. involvement with each.
[Click
here for a summary of PAM futures contracts]
The contracts traded on PAM will be based on
objective data and observable events. These contracts will be valuable
because traders who are registered with PAM will use their money
to acquire contracts. A PAM trader who believes that the price
of a specific futures contract under-predicts the future status
of the issue on which it is based can attempt to profit from his
belief by buying the contract. The converse holds for a trader
who believes the price is an over-prediction – she can be
a seller of the contract. This price discovery process, with the
prospect of profit and at pain of loss, is at the core of a market’s
predictive power.
The issues represented by PAM contracts
may be interrelated; for example, the economic health of a country
may affect civil stability in the country and the disposition of
one country’s military may affect the disposition of another
country’s military. The trading process at the heart of PAM
allows traders to structure combinations of futures contracts. Such
combinations represent predictions about interrelated issues that
the trader has knowledge of and thus may be able to make money on
through PAM. Trading these trader-structured derivatives results
in a substantial refinement in predictive power.
[Click
here for an example of PAM futures and derivatives contracts]
The PAM trading interface presents A Market
in the Future of the Middle East. Trading on PAM is placed in the context of the region
using a trading language designed for the fields of policy, security,
and risk analysis. PAM will be active and accessible 24/7 and should
prove as engaging as it is informative.
Copyright © 2003 Net Exchange. All rights
reserved.
Reprinted for Fair Use Only.
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