Fixed Odds Bookmaking with Stochastic Betting Demands

Stewart Hodges, Hao Lin and Lan Liu

European Financial Management, 2013, vol. 19, issue 2, 399-417

Abstract: This paper studies fixed odds bookmaking in the market for bets in a British horse race. The bookmaker faces the risk of unbalanced liability exposures. Even random shocks in the noisy betting demands are costly to the bookmaker since his book could become less balanced. In our model, the bookmaker sets appropriate odds to influence the betting flow to mitigate the risk. The stylised fact of the favourite†longshot bias only arises from the model under specific assumptions. Our model offers insights into the complexity of managing a series of state contingent exposures such as options.

Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://doi.org/10.1111/j.1468-036X.2010.00601.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:eufman:v:19:y:2013:i:2:p:399-417

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1354-7798

Access Statistics for this article

European Financial Management is currently edited by John Doukas

More articles in European Financial Management from European Financial Management Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().