The Superbowl Case Study Solution
Probability implied by the fair-bet:
The probability implied by the fair-bet is computed in the excel file and is attached in the exhibit at the end of this document. It can be said that these numbers satisfied the rules of probability, only one team will win the tournament title which makes the outcomes mutually exclusive, the probability that any team win will be the sum of the probability of each team winning.
It can be said that the New England Patriots will have the highest probability of winning the tournament. On the other hand, the Cleveland Browns, Los Angeles Rams and New York Jets have the lowest probability to win the tournament.
Arbitrage Opportunity:
The scheme number two appears to be the arbitrage opportunity, it is highly likely that the maximum return will be received if the second scheme is opted as the arbitrage opportunity. Under the second scheme, the maximum return will be received from the team which has the highest probability of winning and the lowest money will be betted on New York Jets, Los Angeles Rams and Cleveland Browns because these teams have the lowest probability of winning.
Furthermore, the gamblers will not make any loss under the scheme two as the money will be invested in all the teams in their respective probabilities which is the main characteristic of the arbitrage opportunity. The main advantage and characteristic of the arbitrage opportunity is that the gambler will not make any loss, although the return level could be affected but it is almost guaranteed that the gambler will not suffer any loss.
The Superbowl Harvard Case Solution & Analysis
Although the first scheme will also able the gambler to avoid any losses but the first scheme is not designed on the basis of the anticipated probabilities of victory of each team. And the return of gambler will not be affected from the victory of any team thus this cannot be regarded as the arbitrage opportunity.................
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