On cancellations and delays

When we first introduced futures contracts on games, we had a policy in which the futures would expire at 0 DKP if their underlying games did not make the NPD Top 10. The reason was that if the game didn't make the Top 10, we would have no data to settle the contract. However, the fact that the contract has a risk of expiring at 0 DKP, financially, traders would have to discount the price of the contract for the risk of the contract having no recovery value at all. In this case, contracts would always be under-forecasting unit sales to account for this risk. The price of the future would no longer be directly forecasting the number of units to be sold.

We worked with the NPD Group to be able get sales data for any games we listed as futures contracts so that traders would not have to risk a contract expiring at 0 DKP.

Recently, a number of games listed as stocks on the simExchange have had rumors of cancellation. If a game is cancelled, then a game would sell no copies. As logic would have it, the stock should be worth 0 DKP.

Two problems arose. The first is the same as the previous example in which stock prices would always have to account for the risk of cancellation and so their prices would no longer be direct unit sales forecasts.

The second is that games may never have a confirmed cancellation. After all, Duke Nukem Forever has been in "development" for over a decade. This would result in a stock hanging in limbo at a heavily discounted price that is difficult to interpret. If a publisher chooses to use the stock price for judging the game's potential and decide whether to cancel the game or not, they would have to decipher how much of the stock's discounted price is a result of their own pending cancellation decision.

Ideally, we would like the price of a stock or future to be free of any factor other than the unit sales forecasted. To do this, we have established the following policies:

If a game is confirmed to be delayed outside of the time frame of its futures contract, then all trades on that futures contract will be refunded at original price. This way, traders will never have to price the risk of delay into the price of the futures contract.

If a game is confirmed to be cancelled, then all trades on the futures contract or the stock will be refunded at original price. This way, traders will never have to price the risk of cancellation into the price of the futures contract.

Now what if a game is only rumored to be cancelled or delayed? In this case, you shouldn't be trading any differently as if the game is guaranteed to come out because you are fully protected by a refund.

Currently, there are three stocks listed on the simExchange that have been marred by cancellation rumors. They are Project H.A.M.M.E.R. (Wii), The Elder Scrolls Travels: Oblivion (PSP), and Shenmue Online (PC). No policy had been established regarding cancellations during these game's trading lifetimes, so players traded under the assumption that the stocks would be valued at 0 DKP if the games are confirmed to be cancelled. However, prior to the cancellation rumors, these stocks were all relatively low traded.

We offer the following solution for these three games: Roll back / Refund all trades in the history of these three stocks and delist them. Many players made large gains shorting the stocks when the rumors hit, but these same players have also lost a lot by shorting so low, any rise in the stock results in massive losses. We will allow the community to discuss this solution for these three games through 11PM on Wednesday August 29. If the community is generally happy with this decision, then we will refund all trades for these three games.

UPDATE August 25, 2007: Based on the current discussion, it appears the community would favor cashing out and delisting the three stocks rather than issuing refunds. To determine the cash out price, we would use the same algorithm we use for determining IPO prices. Based on the trading of these three stocks since their cancellation rumors emerged, the cash out prices would be:

Project H.A.M.M.E.R. (Wii)	3.63 DKP
The Elder Scrolls Travels: Oblivion (PSP)	7.88 DKP
Shenmue Online (PC)	6.91 DKP