The Power of Real Options in Games Betting: An Application of Switching Options

Abstract

There are varieties of real options, which include shrinking, expanding, switching and abandon options. This paper applies a switching real options approach to the game betting which allows the gamblers to switch between teams during the game. The volatility of odds is not only a source of concern for the gamblers but also a source of profit opportunities. In this paper, we combine features of the odds volatility and options to switch and find that with low switching cost, gamblers can exploit the variability of a team's odds volatility to increase their profits.