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Risk-Neutral Pricing and Hedging of In-Play Football Bets

Author

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  • Sebastian del Bano Rollin
  • Zsolt Bihari
  • Tomaso Aste

Abstract

A risk-neutral valuation framework is developed for pricing and hedging in-play football bets based on modelling scores by independent Poisson processes with constant intensities. The Fundamental Theorems of Asset Pricing are applied to this set-up which enables us to derive novel arbitrage-free valuation formul\ae\ for contracts currently traded in the market. We also describe how to calibrate the model to the market and how trades can be replicated and hedged.

Suggested Citation

  • Sebastian del Bano Rollin & Zsolt Bihari & Tomaso Aste, 2018. "Risk-Neutral Pricing and Hedging of In-Play Football Bets," Papers 1811.03931, arXiv.org.
    • Handle: RePEc:arx:papers:1811.03931
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    File URL: http://arxiv.org/pdf/1811.03931
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    References listed on IDEAS

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    1. Back, Kerry & Pliska, Stanley R., 1991. "On the fundamental theorem of asset pricing with an infinite state space," Journal of Mathematical Economics, Elsevier, vol. 20(1), pages 1-18.
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    3. Vecer Jan & Kopriva Frantisek & Ichiba Tomoyuki, 2009. "Estimating the Effect of the Red Card in Soccer: When to Commit an Offense in Exchange for Preventing a Goal Opportunity," Journal of Quantitative Analysis in Sports, De Gruyter, vol. 5(1), pages 1-20, January.
    4. Huang, Chi-Fu, 1985. "Information structure and equilibrium asset prices," Journal of Economic Theory, Elsevier, vol. 35(1), pages 33-71, February.
    5. Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
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    Cited by:

    1. Lorig, Matthew & Zhou, Zhou & Zou, Bin, 2021. "Optimal bookmaking," European Journal of Operational Research, Elsevier, vol. 295(2), pages 560-574.
    2. Matthew Lorig & Zhou Zhou & Bin Zou, 2019. "Optimal Bookmaking," Papers 1907.01056, arXiv.org, revised Mar 2021.

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