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Here is how we, based on the odds of a bookmaker,calculates the probabilities behind the posted odds.The calculations are done for an event with three outcomes, like a football match ending with either 1 (home win), X (draw), or 2 (visitors win), but can be used quite generally.The only condition is, that the outcomes, for which odds are given, are mutually exclusive and jointly cover all possible outcomes of the event. Step 1 - Calculating the bookmaker's profit indicator First we calculate what could be termed as the bookmaker's profit indicator. It shows how much the bookmaker receives in stakes whenever he makes a payment of $1. If odds[1] is the (European) odds for a home win, the payout from a $1 bet, then 1/odds[1] is the bookmakers price for a payout of $1 in case of a victory for the home team.The price for paying out $1 irrespective of the outcome of the outcome of the game (where you play all three outcomes) is thus: Profit indicator = (1/odds[1]) + (1/odds[X]) + (1/odds[2]) Example 1 Brazil 1.40 X Draw 3.75 2 England 5.00 Profit indicator = (1/1.40) + (1/3.75) + (1/5.00) = 0.7143 + 0.2667 + 0.2 = 1.181 In this case the profit indicator shows that the bookmaker recevies a stake of $1.181 for every $1 paid out. Step 2 - Calculating the bookmaker's payout share If the bookmaker receives the bets in the right proportions, then the payout share (as part of total stakes for that match) for the customers will be Payout share = 100% x 1 / Profit indicator From the payout share, you'll have the profit share for the bookmaker as 100% - payout share. Example (continued) Payout share = 100% x 1 / 1.181 = 84.67% Step 3 - Calculating the probability for each outcome For the final step, multiply the bookmaker's price for each of the three outcomes by the payoutshare. This removes the part of the price, which is the bookmaker's profit, and leaves only the pure probability element of the price.. The probabilities are thus calculated like this: Probability[1] = (1/odds[1]) x Payout share Probability[X] = (1/odds[X]) x Payout share Probability[2] = (1/odds[2]) x Payout share Example (continued) Probability[1 - Brazil]: 0.7142 x 84.67% = 60.47% Probability[X - Draw]: 0.2667 x 84.67% = 22.58% Probability[2 - England]: 0.2 x 84.67% = 16.93% Sum rounded to 100.00%
Tis is taken from betbrain.com and i guess everybody should know it. I also know that the question that i want to ask was here somwhere, but i can't find it.
and the question is:
do we calculate this in the same way when there are two possible outcomes (f.e. tennis) ?
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