The Winton Climate Prediction Market for UK monthly weather allows participants to take a view on the country’s monthly average temperature and monthly total precipitation for each of the next six months.
The market allows predictions to be placed in the joint space of monthly averaged daily maximum temperature and monthly total precipitation. This space is divided into outcomes each covering 0.2°C in temperature and 5mm in precipitation. The outcomes at the edges of the space are unbounded (except for 0mm of rainfall). By construction one outcome, and only one outcome, in this space must occur.
The market is based on contracts which are collections of one or more outcomes. You can define contracts and trade them using the user interface. You will receive 1 credit for each contract you own which includes the outcome that actually occurs. The prices of contracts range between 0 and 1. For example, if a contract is priced at 0.25 you will have to pay 0.25 to win 1. This is equivalent to odds of 3:1 against. The market does not allow you to “short” contracts – that is sell contracts you haven’t previously bought. However, the prices of all the outcomes in a month will sum to 1, so if you think some outcomes are over-priced it means that other outcomes must be under-priced. You can exploit this mispricing by buying the under-priced outcomes.
This competition is a “play-money” market using market credits instead of real currency. All teams will initially be given 1,000 credits with which to play. During the test, we may make additional distributions of credits across all teams. These distributions will be announced in the News section of the website.
Market Closing And Settlement
The market for each month will be settled using the values of UK maximum temperature and rainfall published by the Met Office. These are available at:
The numbers that will be used to settle a market for a month will be the numbers published by the 15th day of the following month. For example, the market for April will be settled using the numbers available on the Met Office website on May 15. If no numbers have been published by the 15th day of the following month the market will be settled as soon as the Met Office publishes numbers for the month in question.
The market for a month will remain open for trading up until settlement on the 15th day of the following month or the day the Met Office publishes the first numbers for the month if this is after the 15th. Once a market has been settled, accounts will be credited with any winnings which may then be reinvested in remaining markets.
Before a market opens there will be an initial auction to set prices. The bid must state how many of the contract you are prepared to buy and at what price. Once a bid for a contract has been submitted it can be withdrawn up until the close of bidding period for that market.
Other participants cannot see what you are bidding and you cannot see how others are bidding. Once the bidding period has ended, contracts will be allocated based on the value of the bid and without reference to the order in which bids were submitted. A bid may be partially accepted – e.g. you offer to buy 100 contracts but only receive 50 – but the price you pay per contract for any you do receive will be the per-contract price you submitted in the bid. You can only submit one bid for each contract definition, but you can define multiple contracts and submit bids for each one. You cannot control the order in which bids might be accepted. If you run out of credits during the allocation phase, bids which may otherwise have been accepted will not be.
As in any auction, the higher the price you offer the more chance there is of the bid being accepted, but this must be balanced with the risk of overpaying. You do not have to participate in the auction: you can wait until the market opens for continuous trading to place real-time orders. The prices at which the market opens will be set by the outcome of the auction. It is possible that when the market opens for continuous trading the market value of any contracts you obtained in the auction will be less than what you paid for them. This isn’t necessarily something to worry about if you plan on holding the contracts either until settlement, or at least until the market has begun to converge on the final outcome.
The initialisation auction will take place from Monday 5 March to Monday 12 March. During this time bids may be submitted. Bidding will close at 8am on Monday 12 March and contracts will be allocated after bidding has closed.
The News section of the website will be used to make market announcements, such as news of market settlements, the scheduling of the initialisation auction and any injections of credits we might make to all teams during the competition. We will also post items we think will be of general interest to participants in the prediction market.
Using the User Interface
Although the market involves play-money there will be cash prizes awarded to the ten teams with the most credits at the end of the test. These prizes are as follows:
1st - £10,000
2nd - £9,000
3rd - £8,000
4th - £7,000
5th - £6,000
6th - £5,000
7th - £4,000
8th - £3,000
9th - £2,000
10th - £1,000
In the event of k teams tying for Nth place, the total of the prizes for the Nth to the (N+k-1)th places will be shared between the teams.
The names and university affiliations of the top ten teams are displayed on the leaderboard. The teams are ranked by current P&L (profit and loss). These P&L figures can change substantially when a market is settled so until all the markets have been settled the leaderboard is only an estimate of the relative performance of teams.
Selecting DATA on the front page takes you to the Market Data. This page displays the market forecasts of temperature and precipitation. The index value is the median of the marginal distribution of the variable implied by the market prices. The uncertainty bounds represented by the ribbon plot correspond to the interquartile range of this implied distribution. You can also view the implied probability distributions for the selected variable by choosing the month.
If you select MARKET you are presented with a timeline showing the months for which there are markets. Select one of these months and you are presented with a summary of the contracts that you have created. Your account balance is also shown. Before you can buy a contract – which is a collection of outcomes – you must create it. You can do this by selecting CREATE CONTRACT. You must give your contract a name, this name is a reminder for you and can be anything. Contracts can be defined visually or using rules. Visual definition is done on the two-dimensional grid of outcomes which is colour-coded to indicate the price of each outcome. When you hover over an outcome, a box appears telling you the price for that outcome. You can define a contract by drawing rectangles on the grid of outcomes. The contract will consist of all the outcomes enclosed by the rectangle(s) you draw. If the rectangles overlap the outcomes in the overlapping regions are only counted once. To use rules to define your contract you must fill in values in conditional statements. If any of the conditional statements are true the contract will pay out 1 credit.
Once you have defined a contract click CREATE (the CREATE button is not active until you have named the contract). You will be presented with a summary of the contract definition. Click CREATE on this summary to accept the definition or click CLOSE to return to defining the contract.
Created contracts appear on the list. The quantity is initially zero because, although you’ve created the contract, you still haven’t purchased any. Select PREVIEW to see the outcomes covered by the contract. The list of contracts also gives a price for each one. This price is the sum of the prices of the individual outcomes covered by the contract. Remember that the contract will pay out 1 credit if it includes the outcome that occurs.
If you select PLACE ORDER a box appears. There are two types of order: a real-time order in which you receive a price quote and decide whether to accept it and an auction order in which you specify the price and the order goes into an auction which occurs every day between 8:00am and 10:00am. Before trading begins there is an initialisation auction which lasts 6 days (see INITIALISATION AUCTION section).
To place a real-time order select BUY or SELL. Specify the quantity of contracts you wish to buy or sell, select GET QUOTE to get a price for the order. The quoted price for a large order may differ substantially from the current price. If the price is acceptable select PLACE ORDER and the order will be placed in a queue. If you try to sell more contracts than you own, or you try to place a buy order for more credits than your current balance, the order will be rejected.
As well as the initialisation auction, there will also be a daily auction. Orders may be placed into this auction at any time during trading hours but the orders will only be processed once a day. To place an auction order, select BID or ASK and specify the number of contracts you wish to buy or sell and the price you are prepared to pay or wish to receive for the order. Note that this is the total price not the price per contract, the implied price per contract will be displayed however. Once you submit the order it will be placed in the auction book. The auction book is processed every day when the market is closed between 8:00am and 10:00am. The highest value bids and asks will be accepted. An auction order may only be partially accepted: e.g. you may bid for 100 contracts but only receive 50. If you ticked the “Carry over” box when placing an auction order and the order is not completely accepted the order for the outstanding number of contracts will be carried over to the next auction. Auction orders can be cancelled and removed from the auction book whenever the market is open.
Auction orders can be an efficient way of placing large orders without causing large changes in price, if there is also interest on the other side of the market. Auction orders are also used to set the initial prices (see the INITIALISATION AUCTION section).
Selecting PRICES gives you the grid of outcomes colour-coded by current prices while selecting EXPOSURE gives you a similar grid colour-coded by your current position in each outcome. Your current position is the number of credits you will receive if that outcome is the one that occurs. Selecting MARKET takes you back to the list of your contracts.
If you select VIEW ORDERS you can choose to view the status of either your real-time orders or your auction orders. The list of real-time orders is divided into pending orders and historical orders. The list of auction orders is divided into active orders, which are currently sitting in the auction book, and historical orders.
The MY ACCOUNT page gives two valuations of your current holdings. The instantaneous value is the total of the current price of each contract multiplied by the number you hold. If you interpret the current price of each outcome as the implied probability of it occurring then this instantaneous value is equivalent to the expected value of your contracts. The liquidation value is what you will receive for your holdings if you sell them all at once. The liquidation value is less than the instantaneous value but it is an immediately realisable value, compared to the more hypothetical instantaneous value.
The MY ACCOUNT page also gives you your current P&L (profit and loss) and a graph of its history. Your P&L is the sum of your credits plus the liquidation value of your portfolio minus total deposits of credits. At the bottom of the page is an inventory of the contracts you have defined and the valuations of your current holdings of these contracts. Note that the total of the liquidation values for each contract will not exactly match the liquidation value of your entire portfolio. This is because the liquidation values of each contract are calculated based on the assumption that you continue to hold all your other contracts, whereas the liquidation value in your account summary is based on you selling everything.
Team Admin (Team captains only)
Team captains can add and remove team members. If you add an email address of a team member they will receive an email asking them to confirm their email address and create a password. All team members trade using the same credit balance and all team members have the same rights to trade contracts. Existing team members can be removed by clicking REMOVE. There are no limits on the size of the team, apart from your ability to manage them. Teams of one are permissible.