Risk-Neutral Pricing and Hedging of In-Play Football Bets

Peter Divos, Sebastian Del Bano Rollin, Zsolt Bihari and Tomaso Aste

Applied Mathematical Finance, 2018, vol. 25, issue 4, 315-335

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 formulæ 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.

Date: 2018
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DOI: 10.1080/1350486X.2018.1535275

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