OK, but do you see my point? Regardless of the vote outcome, the UK equity markets will react: call the reaction (percentage) jump [$]\Delta S[$]. So, [$]Q < P[$] suggests the equity market jump will be less negative (or more positive?) if the outcome is Leave vs Remain.In other words, [$]Q < P[$] says to me that [$]\Delta S|L > \Delta S|R[$], where L=Leave outcome, R=Remain outcome, and "|" means "conditional on".Otherwise, if [$]\Delta S|L < \Delta S|R[$], the Leave bet would serve an insurance function and people would bid it up until [$]Q > P[$],just like bidding up the price of an out-of-the-money SPX put. For example, to put some numbers on it, my a priori would have been somethingin the ballpark of [$]\Delta S|L \approx -5\%[$] and [$]\Delta S|R \approx 0[$] (status quo), leading to my puzzle. Or am I missing something?
Last edited by Alan
on June 16th, 2016, 10:00 pm, edited 1 time in total.