Estimate margin in a two-way market

Bookmaker prices generally include margin. Adding the raw implied probabilities for all mutually exclusive outcomes shows the overround. A simple normalization can illustrate the difference, but it does not uncover the true probability of an event.

Work through it

1. Convert each side to implied probability using the correct odds formula. Confirm that the market is exhaustive and that no draw or other outcome is missing.
2. Add the probabilities and compare the sum with 100%. Divide each implied probability by the total for a simple proportional normalization.
3. Label the normalized figures as a modeling convention. Different margin-removal methods can produce different estimates, especially in uneven markets.

Check your result

• All possible outcomes are included.
• The raw prices are retained.
• The normalization method is named.