Valuation and Hedging of Sports Futures Wagers

Article Sidebar

Requires Subscription or Fee PDF (GBP 25)
Published: May 30, 2017
DOI: https://doi.org/10.5750/jpm.v11i1.1336

Main Article Content

Reinhold Lamb
University of North Florida
Thomas J. O'Brien
University of Connecticut

Abstract

 This study investigates, in a conceptual way, the intrinsic valuation of sports futures wagers and, given the absence of a viable secondary market, strategies for locking in pre-expiration value by hedging with the existing set of futures wagers, proposition wagers, and game wagers. An interesting finding is that effective hedging with game wagers generally involves games of teams other than the futures team, in addition to the futures-team’s games. The paper also shows how to use current game odds and futures odds to find the implicit projected odds on future games, conditional on the match-ups to be determined by the outcomes of current games.  

Article Details

Issue
Vol. 11 No. 1 (2017)
Section
Articles

References

Berkowitz, Jason. P., Craig A. Depken II, & John M. Gandar, “Information and accuracy in pricing: Evidence from the NCAA men's basketball betting market,” 2015, Journal of Financial Markets 25, 16-32.

Berkowitz, Jason. P., Craig A. Depken II, & John M. Gandar, “The Conversion of Money Lines into Win Probabilities.” 2016, Unpublished Working Paper, St. John’s University and University of North Carolina Charlotte.

Cortis, Dominic, “Expected values and variances in bookmaker payouts: A theoretical approach towards setting limits on odds,” 2015, Journal of Prediction Markets 9(1), 1-14.

Doherty, Neil A., & Hal J. Singer, “The benefits of a secondary market for life insurance policies,” 2002, Wharton Financial Institutions Center Working Paper Series #02-41, 1-38.

Gandar, John, Richard Zuber, Thomas O’Brien, & Ben Russo, “Testing rationality in the point spread betting market,” 1988, Journal of Finance 43(4), 995-1008.

Golec, Joseph, & Maurry Tamarkin, “The degree of inefficiency in the football betting market,” 1991, Journal of Financial Economics 30(2), 311-323.

Gray, Philip K., & Stephen F. Gray, “Testing market efficiency: Evidence from the NFL sports betting market,” 1997, Journal of Finance 52(4), 1725-37.

Hvattum, Lars M., “Analyzing information efficiency in the betting market for association football league winners,” 2013, Journal of Prediction Markets 7(2), 55-70.

Levitt, Steven D., “Why are gambling markets organized so differently from financial markets,” 2004, The Economic Journal 114(495), 223-246.

McEwen, Wayne, & Neil M. Metz, “Competitive balance: Championship futures betting markets.,” 2013, International Journal of Sport Finance 11, 63-78.

Moskowitz, Tobias, “Asset pricing and sports betting,” 2015, Chicago Booth Research Paper, No. 15-26.

Wever, Sean, & David Aadland, “Herd behavior and underdogs in the NFL,” 2012, Applied Economics Letters 19(1), 93-97.

Woodland, Bill M., & Linda M. Woodland, “The effects of risk aversion on wagering: Point spreads versus odds,” 1991, Journal of Political Economy 99(3), 638-53.

Woodland, Bill M., & Linda M. Woodland, “Market efficiency and the favorite-longshot bias: The baseball betting market,” 1994, Journal of Finance 49(1), 269-79.