Bets and decisions · Market making · difficulty 2 of 5
Quoting to someone who knows
You make a market on a contract that pays, in dollars, the roll of a fair six-sided die. You'll buy one contract at $3 (your bid) or sell one at $4 (your ask). One trader comes along who has already seen the roll. They buy from you at $4 if the roll is above 4, sell to you at $3 if the roll is below 3, and otherwise don't trade. After any trade, the contract settles at the roll. What is your expected profit, in dollars, per roll?
Answer with an expected value. First lock in a gut guess with an 80% range, then solve it properly, then watch a simulation settle on the truth.
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