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Optimal Bookmaking

Matthew Lorig, Zhou Zhou and Bin Zou

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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.

New Economics Papers: this item is included in nep-upt
Date: 2019-07, Revised 2019-07
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