Download This PaperOptimal Bookmaking
22 Pages Posted: 9 Jul 2019
Date Written: July 5, 2019
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: HJB equation; optimization; Poisson process; sports betting; stochastic control; utility
Suggested Citation: Suggested Citation
Lorig, Matthew and Zhou, Zhou and Zou, Bin, Optimal Bookmaking (July 5, 2019). Available at SSRN: https://ssrn.com/abstract=3415675 or http://dx.doi.org/10.2139/ssrn.3415675
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