Optimal Bookmaking
Mathematical Finance
2021-03-09 v3 General Finance
Abstract
We introduce a general framework for continuous-time betting markets, in which a bookmaker can dynamically control the prices of bets on outcomes of random events. In turn, the prices set by the bookmaker affect the rate or intensity of bets placed by gamblers. The bookmaker seeks a price process that maximizes his expected (utility of) terminal wealth. We obtain explicit solutions or characterizations to the bookmaker's optimal bookmaking problem in various interesting models.
Keywords
Cite
@article{arxiv.1907.01056,
title = {Optimal Bookmaking},
author = {Matthew Lorig and Zhou Zhou and Bin Zou},
journal= {arXiv preprint arXiv:1907.01056},
year = {2021}
}
Comments
30 pages, 7 figures