Concepts — Framework, Indicators, Theory
The conceptual stack behind every prediction-market call SimpleFunctions makes. Each page is a hand-written long-form explanation of one piece of the framework.
Frameworks
The Prediction Market Indicator Stack: Five Numbers That Actually Matter
IY, CRI, EE, LAS, CVR. The five indicators that turn a binary price into a decision. Tier A is always available; Tier B is sparse and that sparsity i…
The Valuation Funnel: How to Get From 47,000 Prediction Markets to One Trade
The 3-stage hierarchy that turns the universe into a position. Filter by indicator, then read the orderbook, then apply causal reasoning. Each layer …
Indicators
Implied Yield: The Bond-Trader View of a Binary Contract
IY = (1/p)^(365/τ) − 1, walked through three real Fed and weather contracts, four edge cases, and the framing that turns prediction markets into a cr…
Expected Edge: How to Combine IY, CRI, and EE Into One Action
The composition rule. Filter by IY, then check CRI, then verify EE. The hierarchy is not optional. A worked walkthrough from 47K markets to one trade.
Event Overround: Multi-Outcome Arbitrage in Practice
EE = Σpᵢ − 1. The borrowed term from sports betting, the Newsom/Harris/Buttigieg example walked through fully, and the two ways the assumption silent…
Cliff Risk Index: The Activity Filter
CRI = |Δp/Δt| × τ_remaining. Why velocity alone misleads, why the τ multiplier deflates settlement noise, and how three contracts in different states…
Theory
From Actuarial Brier Scores to Prediction Market Category Calibration
Brier scores were invented for weather forecasting and adopted by actuaries. The math ports directly. The interesting question is calibration by cate…
From Horse Racing Overround to Prediction Market Vig
Sports betting has priced overround for two centuries. The math ports to prediction markets directly. The venue economics do not, and the difference …
From ADR Arbitrage to Cross-Venue Prediction Markets
American Depositary Receipts trade in two markets simultaneously and converge via arbitrage. The same outcome on Kalshi and Polymarket is the predict…
From Sports Betting CLV to Prediction Market Trade Quality
Closing Line Value is the gold standard for sharp sports bettors. PMs do not have a closing line in the same sense. Here is the PM-native equivalent …
From Black-Scholes to Binary Markets: What Options Theory Gives You and What It Doesn’t
Risk-neutral pricing ports cleanly. The vol surface does not. Delta hedging is trivially-yes; gamma trading is meaningless. Here is the line-by-line …
From Options Skew to Multi-Strike Prediction Market Events
Options have a vol smile because OTM puts get bid by hedgers. Multi-strike prediction-market events have a structural skew because tail outcomes get …
Why "Prediction Market Index Funds" Are Mathematically Dubious
Index funds work in equity because constituents share macro exposures and have stable market caps. Binary prediction-market contracts have neither. A…
Why Parimutuel Intuition Fails on Order-Book Prediction Markets
Horse racing pools dilute payouts as more bets stack on a winner. Kalshi and Polymarket continuous limit order books do not. The payoff is a fixed do…
Why a "DCF" of a Prediction Market Is Mathematically Incoherent
A discounted cash flow model needs multiple cash flows and a discount rate that compensates the holder for bearing those flows over time. A binary pr…
Why Beta-to-S&P Doesn't Make Sense for Prediction Markets
Beta requires a continuous return distribution and a meaningful market portfolio. Prediction markets have neither. The few correlations that exist th…
Why Greek Letters Mostly Don't Port: Delta, Gamma, Vega, and Binary Contracts
Options have a Greek apparatus because the underlying is a continuous price process. Binary prediction-market contracts have no underlying spot. Of t…
Why P/E Ratios Don't Port to Prediction Markets — and What Does
Equity P/E rests on an unbounded earnings stream and a continuous price. Binary prediction-market contracts have neither. The right analog is yield-t…
Prediction Market Valuation Theory: A Capstone
The funnel, the indicator stack, the three-source axis, and null-as-signal — synthesized into one theory of how to value a binary contract. The marke…
Endogenous vs Reality vs Opinion Data: The Three-Source Axis
A thesis built on one data source is brittle. A thesis built on three is defensible. The three-source axis is the framework for keeping yourself hone…
τ-days: The Continuous Time Unit Underneath Every Indicator
Calendar days to resolution, expressed as a float, drives every other indicator in the stack. The unit looks trivial. Getting it wrong corrupts every…
Methodology
The Prediction Market "Narrative Beta": When News Cycles Move Multiple Markets at Once
Some prediction markets are narratively correlated even when their underlying outcomes are independent. Every "AI" market moves together when OpenAI …
Catalyst-Driven Spread Compression: Reading the Tape Before News
Before any scheduled catalyst — Fed announcement, jobs report, election night — the spreads on the relevant prediction markets compress in a predicta…
Resolution Ambiguity Score: Quantifying Rule-Risk Per Market
Every prediction market has a measurable "ambiguity score" based on how many edge cases the rule mentions, the venue history of disputes on similar m…
Steam Moves Across Venues: When Sharp Money Hits Both Books at Once
Sports bettors have a name for the simultaneous coordinated movement of two books that signals real money: steam. Prediction markets have steam too, …
Adverse Selection on Prediction Markets: Why Your Counterparty Knows Something You Don't
The fundamental market-maker problem in one sentence: the people who hit your bid know more than you. PMs have specific adverse-selection patterns by…
Pin Risk in Binary Settlements: When 0.50 Becomes 0.00 or 1.00
A binary contract sitting at 50¢ at the moment of resolution settles to either $1.00 or $0.00 with no gradient in between. That snap is real dollar r…
Resolution Risk Premium: Pricing the Rule, Not the Outcome
When the resolution rule is fuzzy, the displayed market price is not the probability of the outcome — it is the market's best guess at how the rule w…
Maker / Taker Regime in Prediction Markets: How to Read the Orderbook State
Every binary market is in one of three regime states at any moment: maker-dominated, taker-dominated, or neutral. The state changes which side of the…
Hazard Rate Anomalies in Temporal Series: When the Yield Curve Lies
Cycle-clustered prediction markets form a hazard-rate curve over time. Sometimes the curve has anomalies that violate basic monotonicity. Those anoma…
The Vig Wall: Why Multi-Outcome Events Have a Hard Overround Floor
On a multi-outcome prediction-market event, the sum of YES prices across all outcomes is almost always greater than 1.0 by 2-4 cents. That floor is s…
Liquidity Migration Across Resolution: Where the Money Goes When a Market Closes
When a high-volume prediction market resolves, the capital that was in it has to go somewhere. The migration patterns are predictable enough that the…
Cross-Venue Convergence Dynamics: Why Kalshi and Polymarket Converge — and When They Don't
The same outcome on Kalshi and Polymarket usually trades within 2-5 cents of itself. When the gap widens past that, one of three specific things has …
New Market Price Formation: The First 24 Hours of a Listed Contract
When a binary contract first lists, the price is wild. Spreads are 10+ cents wide, depth is in the single digits, and the displayed mid swings 20-40 …
Reflexivity Loops in Election Markets: When Price → Consensus → Price
Soros named it. Election markets live it. The implied probability becomes the news, the news shapes new positioning, the new positioning shapes the p…
The Settlement Halo: Microstructure Changes in the Final 24 Hours
Every binary contract goes through the same predictable shift in the 24 hours before resolution. Spreads compress, volume spikes, makers withdraw, re…
Tail-of-Day Pin Risk: Why Daily-Settled Contracts Move at 3:55 PM ET
Daily-settled price-target binaries see a violent shift in the final 30 minutes of the trading day. Makers cannot hedge a binary that is pinning to {…
The Longshot Bias in Modern Prediction Markets — 80 Years of Evidence in One Number
Pari-mutuel horse racing has had a documented longshot bias since the 1940s. Polymarket and Kalshi have a measurable version too, and the direction i…
Information Latency: How Fast Do Prediction Markets React to News?
A new piece of information drops at time T. The price reflects it at T + Δ. Δ is your edge window. Three real episodes — Fed decision, geopolitical s…
Why "Thesis Confidence" Is Not the Same as Market Price
A 70% subjective conviction about an outcome and a 70-cent market price are not the same number. The market price is the capital-weighted aggregate o…
Null Is a Signal, Not a Defect: Reading Missing Data on Prediction Markets
When LAS is null, when EE is null, when PIV is near zero — the absence of data is sometimes the entry condition. Four null patterns and the four make…