Mathematics

Single Period Option Pricing The basic model of option pricing is based on the binomial Pricing model. A no-arbitrage argument can be made against an option price being equivalent to the portfolio of a bond and the stock. (The payoff diagrams would be similar) The generalisation of the binomial pricing model for multiple periods is the black scholes formula

I recently came across (and actually understood this time) , arbitrage opportunities in FX exchange rates. So there is a graph algorithm which when used against different FX pairs, can tell us if riskless bets can be made. Trying to apply the same to horse betting seemed obvious at first glance, but since there is no clear ‘graph’ we can exploit here, it took some time for me to understand how it is possible....