Re: anonymous oddsman

[ichudov@algebra.com (Igor Chudov @ home)]

Igor Chudov @ home wrote:
> 
> John Anonymous MacDonald wrote:
> > 
> > Ladbroke's (celebrating Halloween, probably) again offers
> > 50:1 odds on Perot! Clinton and Browne are still not being
> > offered. Recalling last Saturday's Dole odds; they were
> > 7:1 at Ladbroke's, and 8:1 at William Hill. The betters at
> > Ladbroke's (who get a somewhat worse deal, it seems) are
> > bullish on Dole, while those at William Hill are now a bit
> > more bearish on the old man, so the numbers diverge in the
> > final stretch of the horserace.
> > 
> >               Prices @ 09:21 GMT Sat 2nd Nov 96
> >         +---------+----------------+----------------+
> >         |         |  Ladbroke's    | William Hill   |
> >         +---------+----------------+----------------+
> >         | Clinton | Not currently offered by either |
> >         | Dole    |     6:1        |     10:1       |
> 
> Whew! They are wide open for arbitrage! Suppose that at Ladbroke I sell
> an obligation to pay $6 if Dole wins (they are apparently valuing it for
> this much), collecting $1. At the same time, to hedge my exposure, I go
> to "William Hill", and purchase their obligation to pay _me_ $10 if Bob
> Dole wins, paying the $1 bill that I just got at Ladbroke's.
> 
> If bob dole loses, I lose nothing. If he wins, I make $4 out of air.
> 
> I wonder why the beting markets are so imperfect.
> 
> 
> have fun
> 
> igor

Homework: guess how should I trade so that I lock in _definite_ profit
before elections such that I am fully hedged against any outcome of the
election.

igor