Jason Ruspini on Political Event Swaps:
Whatever specific form the contract takes, it is true that the special interest will likely be at an informational advantage, which might cause speculators to demand so high a “premium” that trade does not materialize. That is, the special interests would rather take their chances with lobbying. This is however more of an issue with the business of such deals, not their theoretical value. It might help to answer the question about why they haven’t happened yet, but doesn’t say that they ought not or will not. Also, this specific obstacle wouldn’t apply to general tax futures, and wouldn’t apply as much in cases where the counterparties are relatively organized cross-hedgers. One can also imagine examples where there is no existing reasonable proxy for exposure to legislation. For instance, the estate tax. (Tax-free bonds don’t cut it in that scenario.)
