Implied Probability: The 3 to 1 Ratio - Quant Trader Interview Question
Difficulty: Easy
Category: Probability & Statistics
Practice quant interview questions from top firms including Jane Street, Citadel, Two Sigma, DE Shaw, and other leading quantitative finance companies.
Topics: probability, odds, betting, risk-management, trading-math
Problem Description
In quantitative trading and risk management, "odds" are often used to describe the payout profile or the risk-to-reward ratio of a position. To calculate your break-even win rate, you must instantly convert these odds into a percentage probability.
If an event is quoted at 3 to 1 odds against (meaning 3 failure outcomes for every 1 success outcome), what is the implied probability of the event occurring?
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