No abstract

A risk-neutral valuation framework is developed for pricing and hedging in-play football bets based on modelling scores by independent Poisson processes with constant intensities. The Fundamental Theorems of Asset Pricing are applied to this set-up which enables us to derive novel arbitrage-free valuation formulae for contracts currently traded in the market. We also describe how to calibrate the model to the market and how trades can be replicated and hedged.