Donald Trump Index
A Pdot index is a synthetic index that tracks the success of an individual person. The value of each index is derived from the value of a basket of speculative positions held in decentralized prediction markets on Augur (Rinkeby Ethereum Testnet). For each index, the portfolio manager will carefully construct a portfolio that tracks the “success” of the index's target while optimizing for stated levels of volatility. Each index is designed to track performance across one or more of the following dimensions: Achievements & Accolades, Financial Success, and Popularity.
These indexes use special types of prediction markets called Scalar Markets. In a Scalar Market, the final payout is based on the actual outcome’s value within a numerical range – which means that the current share price should represent the “most likely” outcome at a given point in time, as determined by the wisdom of the crowd. As time progresses towards the market’s expiration, the “most likely” outcome may change, and as it does the share price (and thus the index’s value) should adjust accordingly.
To construct an index, the portfolio manager will first select the key performance indicators (along with their relative weightings) that will make up the portfolio. The index will then allocate into scalar markets on Augur, based on these weightings, at each market’s current share price. The portfolios are designed to be rebalanced once every 3 months, which means that the underlying markets will typically have an expiration date equal to quarter-end. It is on this quarter-end date that the index values will resolve to reality, based on the defined KPIs and their relative weights.
Each scalar market will have a minimum and maximum value. This range determines the volatility profile of the market (tighter bands offer more leverage). If the actual outcome ends up at or below the market’s minimum value, the shares will be worth zero. If the actual outcome ends up at or above the market’s maximum value, the shares will be worth two times their value at the midpoint of the range. To ensure an appropriate level of volatility, Pdot will select markets with minimum and maximum values defined by the 5th and 95th percentile outcomes, based on a proprietary analysis performed at the time of market creation. This means that we can expect a 5% chance that the shares will be worth zero at expiration date. Likewise, we can expect a 5% chance that the shares will increase 2x from the midpoint price (which is typically the index’s entry point) at expiration date.
The current value of each index is simply a weighted sum of the adjusted share prices – normalized between 0 and 1 – for each market in the index’s portfolio (see the example formula above). To control volatility and to ensure that the index’s value will never fall to zero, the index will always keep 10% of the portfolio allocated to “Stable Value”. This means that the index’s value will never fall by more than 90% in a given 3-month period.
A portfolio manager may change the composition of an index at any time (although most changes are expected to occur during the quarterly rollover period). To do this, the total value of the portfolio is reallocated to the new set of markets based on current share prices. Note that a portfolio rebalance will have no immediate impact on the value of the index. The most up-to-date list of each index’s underlying positions (and their relative weightings) will always be visible on Pdot Index.
Note: Pdot Index only creates markets on the Rinkeby Ethereum Testnet (Rinkeby Ether can be obtained through the free Rinkeby Authenticated Faucet). Pdot Index has no control over market creation or trading activity that happens on the Ethereum Mainnet, or on any other platform outside of PdotIndex.com. Pdot Index has no affiliation with any external markets that may become available.