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Pre-electoral coalition agreement from the Black-Scholes point of view

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  • Darko Mitrovic

Abstract

A political party can be considered as a company whose value depends on the voters support i.e. on the percentage of population supporting the party. Dynamics of the support is thus as a stochastic process with a deterministic growth rate perturbed by a white noise modeled through the Wiener process. This is in an analogy with the option modeling where the stock price behaves similarly as the voters' support. While in the option theory we have the question of fair price of an option, the question that we ask here is what is a reasonable level of support that the coalition of a major party (safely above the election threshold) and a minor party (under or around the election threshold) should achieve in order the minor party to get one more representative. We shall elaborate some of the conclusions in the case of recent elections in Montenegro (June, 2023) which are particularly interesting due to lots of political subjects entering the race.

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  • Darko Mitrovic, 2023. "Pre-electoral coalition agreement from the Black-Scholes point of view," Papers 2310.16424, arXiv.org, revised Feb 2024.
    • Handle: RePEc:arx:papers:2310.16424
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    References listed on IDEAS

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    1. Tristan Guillaume, 2019. "On the multidimensional Black–Scholes partial differential equation," Annals of Operations Research, Springer, vol. 281(1), pages 229-251, October.
    2. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
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