Options, from the beginning

What a base rate is, and why this desk speaks in them

4 min read

In one line

A base rate is a count of what has already happened in cases like this one, reported with how many cases there were — and it is the only forward-looking form of statement this desk makes.

How it works

"The last 24 RBI decisions moved NIFTY about 0.6% either way, and more than 1% in 7 of them" is a base rate. Every part of it is measured: the class of event, the count, the middle of the distribution and how often the tail was reached. Nothing in it is a claim about the next one.

THE COUNT IS NOT DECORATION. A rate over nine cases and a rate over nine hundred read identically on a page and mean entirely different things, so this desk prints the count beside every rate and greys the rate below a floor. The floor is thirty for session-based figures and twelve for events, and the lower event floor is deliberate arithmetic rather than a relaxation: there are eight policy decisions in a year and two hundred and fifty sessions, so a thirty-case floor would grey every event on the desk and the section would print nothing.

Each sub-measurement carries its OWN count, which is usually smaller than the headline one. The session after an event has no reading for the newest event; the comparison with what the option market was charging exists only for events the chain archive reaches back to. Reporting either against the headline count would be borrowing a sample, and this desk refuses that everywhere.

What it is not

A base rate is not a probability for tomorrow, and it is not improved by being read as one. It is also not a claim that the past distribution holds: markets change, and the honest reading of "the last 24 moved 0.6%" is exactly that sentence and nothing more. Where a desk cannot even say that — a first-of-its-kind event, a class with three observations — the right answer is no number, not the nearest available one.

Mayawhat these words mean

Maya reads the desk’s written explainers and the glossary. She holds no market data at all, so she can say what a thing is and cannot say what it is doing today.