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

Risk-Neutral Pricing and Hedging of In-Play Football Bets 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 formulæ 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Applied Mathematical Finance Taylor & Francis

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

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

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 formulæ 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.
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Publisher
Taylor & Francis
Copyright
© 2018 Informa UK Limited, trading as Taylor & Francis Group
ISSN
1466-4313
eISSN
1350-486X
DOI
10.1080/1350486X.2018.1535275
Publisher site
See Article on Publisher Site

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 formulæ 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.

Journal

Applied Mathematical Finance – Taylor & Francis

Published: Jul 4, 2018

Keywords: Asset pricing; hedging; football; betting

References

  • On the Fundamental Theorem of Asset Pricing with an Infinite State Space
  • In-Play Tracker - Summer 2013
  • The Valuation of Options for Alternative Stochastic Processes
  • A General Version of the Fundamental Theorem of Asset Pricing
  • A Birth Process Model for Association Football Matches
  • Modelling Association Football Scores and Inefficiencies in the Football Betting Market
  • On the Integro-Differential Equations of Purely Discontinuous Markoff Processes
  • Valuation of Soccer Spread Bets
  • Martingales and Arbitrage in Multiperiod Securities Markets
  • Martingales and Stochastic Integrals in the Theory of Continuous Trading
  • A Stochastic Calculus Model of Continuous Trading: Complete Markets
  • Information Structure and Equilibrium Asset Prices
  • How Do Markets Play Soccer?
  • Modelling Association Football Scores
  • Estimating the Effect of the Red Card in Soccer: When to Commit an Offense in Exchange for Preventing a Goal Opportunity