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 formul\ 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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