A Taxonomy of Event-Linked Perpetual Futures: Variant Designs Beyond the Single-Market Binary Case

Paper: arXiv 2605.10428

Authors: Maksym Nechepurenko

Abstract

Paper 1 of this research programme develops a resolution-aware risk-design framework for the simplest event-linked perpetual: a contract whose underlying tracks a single binary prediction-market probability through resolution. The instrument class is broader. Variants span conditional probabilities P(A|B), spreads p^A - p^B, weighted baskets sum w_i p^(i), derivatives on variance or entropy of the probability process, contracts on liquidity itself, perpetual-on-expiring-event roll structures, and funding-only derivatives with no settlement. Each variant inherits some framework components from the single-market binary case and requires its own design adaptations. This paper develops a formal taxonomy of seven pure-form canonical variants beyond the probability-index perpetual of Paper 1, organised along four orthogonal design axes: underlying geometry, temporal structure, settlement structure, and venue composition. The list is not exhaustive; combinations are not treated separately. For each variant we provide a precise payoff definition; an inheritance map identifying which Paper 1 components carry over, are modified, or fail; variant-specific design constraints; microstructure properties; empirical evaluability on the PMXT v2 archive; and limitations. Notable findings: the conditional variant admits a candidate non-portability proposition (denominator instability as the conditioning event becomes improbable); the spread variant requires a three-channel decomposition of resolution risk; the volatility/entropy variant avoids random binary terminal-collapse but introduces estimator-convention and entropy-decay issues; the basket variant requires multi-period jump-aware margin whose aggregation is correlation-dependent. The paper is theoretical primarily; it specifies how demonstrative time series can be constructed and provides evaluability criteria to guide future work.

Complexity vs Empirical Score

• Math Complexity: 6.5/10
• Empirical Rigor: 2.5/10
• Quadrant: Lab Rats — theoretically deep, empirically untested

Why this score: The paper constructs a formal, rigorous taxonomy of complex financial derivatives using architectural design principles and structural decomposition, but it explicitly classifies itself as theoretical with empirical evaluation relegated to future work.

Research Flowchart

  flowchart TD
    A[<b>Goal:</b> Develop Risk-Design Framework for Event-Linked Perpetual Futures] --> B[<b>Methodology:</b> Taxonomy of 7 Canonical Variants]
    B --> C{<b>Inputs:</b> 4 Design Axes<br/>(Geometry, Temporal, Settlement, Venue)}
    C --> D[<b>Computational Process:</b> Component Inheritance Mapping & Payoff Formalization]
    D --> E[<b>Analysis:</b> Empirical Evaluability on PMXT v2 & Microstructure Modeling]
    E --> F[<b>Outcomes:</b> Identified Design Constraints, Instability Risks & Future Construction Criteria]

Cited References (13)

1. Prediction Markets (2004) — link
2. Interpreting the Predictions of Prediction Markets (2006) — link
3. Combinatorial Information Market Design (2003) — link
4. Fundamentals of Perpetual Futures (2024) — link
5. An Analysis of Pricing Methods for Basket Options (2004)
6. Towards a Theory of Volatility Trading (1998)
7. A Guide to Volatility and Variance Swaps (1999)
8. Elements of Information Theory (2006)

0 of 13 cited works are in the corpus; resolved via arXiv source bundles, Semantic Scholar and OpenAlex. Corpus-wide: 2518 linked papers.