Brexit: Britain's Call Option

Jun 22, 2016 | 09:00 GMT
Brexit: Britain's Call Option

Betting markets still think Britain will remain in the European Union, the increased popularity of the "leave" camp notwithstanding: They are now pricing only a 27 percent chance of a Brexit. But betting markets are not infallible. After all, they priced an 85 percent chance of a hung British Parliament after the 2015 general elections, which proved emphatically wrong. The recent momentum in the polls suggests that this one is too close to call. The uncertainty surrounding the referendum has been reflected in financial markets. Over the past week, for example, sterling volatility rose higher than it was during the global financial crisis of 2008. Observers simply do not know how things will look if Britain leaves the European Union, but most studies have come to the same conclusion: A Brexit would be bad for the British economy....

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