Optimal bookmaking

Matthew Lorig, Zhou Zhou and Bin Zou

European Journal of Operational Research, 2021, vol. 295, issue 2, 560-574

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 an optimal 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: Stochastic programming; Poisson process; Sports betting; Stochastic control; Utility maximization (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:295:y:2021:i:2:p:560-574

DOI: 10.1016/j.ejor.2021.03.005

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