Wednesday, April 21, 2010

Films + Exchanges: Two interests collide

Two of my interests collide.

The FTC has approved an exchange (called Trend Exchange, follow the media coverage and reaction here) to trade future contracts on Box Office Receipts for films. On Monday, in my class, I let the students discuss how they would design such an exchange, and many questions arose: what will be traded (contracts for box office collection at different times?), timing of the market (before or after film release?), role of the studios (can they bet against their own movies?), or the payout and settlement issues (will they help finance films, hedge, or be speculative on the side?), etc. Some information is available on the Trend Exchange FAQ. There is another exchange approved recently, this one by Cantor, and it gives some information in the contract. I should push the students to come up with a couple of different designs so we can analyze them.



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