Abstract
The no-arbitrage conditions on betting markets are well-known and a prerequisite for the market to adhere to elementary rationality assumptions. In this paper, we also apply the criteria that no asset should be dominated if the pricing is rational, and show that the market odds need to adhere to additional constraints to account for this. Our developments illustrate an important difference between the cases of back and lay bets that, remarkably, is resolved with analogous results. The novel results can be used as constraints in modeling of betting markets, an aid in optimizing betting portfolios, or as empirical tests of bettor rationality.
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