**How are binary prices calculated?**
Hi there,
How do the fixed-odds companies go about calculating the prices in binary bets?
I assume that they use something like Black-Scholes to calculate the fair option value, and then do something with it to munge it into a binary. It's the munging bit that interests me - anyone know how it's done? Can anyone point out any example calculations?
Also, I know that spread betting firms can lay off bets on the futures market if they don't want to take on the risk themselves. Can fixed-odds be laid off on the options market in a similar way, or are most binaries too short a timescale for that to be feasible? (Most binaries are less than 24 hours, aren't they?)
Many thanks,
Geoff |