Equal-profit bets across three match outcomes
Question
A football match has three possible results, each with fractional odds: Team Alpha wins at (a winning $1 stake returns $3, i.e. $2 profit), Team Beta wins at , and a draw at . You stake whole-dollar amounts on Alpha, on Beta and on the draw, choosing the smallest such amounts that make your net profit identical whatever the result. What is that profit? If no such betting is worthwhile, answer .
Short answer
$43. The net results are , and . Setting them equal gives and , so the smallest integer stakes are , , , and every outcome nets dollars.
Adapted from QuantQuestions.io; question and answer rewritten by SelfMadeQuant.com.
See the hint and the full worked solution in the question bank (free account).
Open the worked solutionLessons behind this question
- Market Model and Risk-Neutral Valuation
- Option Mechanics: Calls, Puts, Moneyness, Intrinsic Value, and Exchange vs. OTC Markets
- Option Trading Strategies: Spreads, Combinations, and Payoff Engineering
Start with a free lesson: Options is part of a free topic. Create a free account, no card needed, to read it in full with worked solutions.
Read it free