[Hedging]

Bob correct, Sue incorrect:

I bet on UCI loses:
Profit curve: 5/3*x-(100-x) = -100 + 8/3*x > 0

x > 100(3/8)

x > 300/8

x > 37.5
* x = 48.39

Bob incorrect, Sue correct:

I bet on UCI win:

Profit curve: -x+3/2*(100-x) = 150-5/2*x > 0

x < 150(2/5)

x < 60

*x = 51.61

37.5 <= x <= 60

**concept above can be applied on situation involving more than 2 beliefs

** (RV)X : Sample Space (space of finite/infinite events) -> R (real life things)

**What can I expect? (in any investment activity)

** A Vickrey auction is a type of sealed-bid auction. Bidders submit written bids

without knowing the bid of the other people in the auction.
The highest bidder wins but the price paid is the second-highest bid

** contract:
1.ability to buy
2. transaction done at specified amount (E) (strike price)
3. expiration date
etc.
A sell B PS4 on a agreement if B wants to ( B has options),
B may CALLS (C) A so B can buy from A at specified amount E = 100.
A can charges B with certain premium,P for this contract.

B belief: PS4 price can go up, so B can sell PS4 and earn back money
A belief: PS4 price not go up at all

B : has limited risk of price P

A: no limited risk

values of calls = C_E(S)

S is market price of PS4 (analogue to stock price)

*fair bet (expected return = 0 in long run,no bias in favour of either one of
players) => E(X) = 0

0 = X(D).P(D) + X(D').P(D')
 0 = 1.P(D) + (-3/2) (1-P(D))
0 = 5/2. P(D) -3/2
3/2 = 5/2.P(D)
P(D) = 3/5

odds: a:b for event A happens , p(A) = a/(a+b)