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Hard · Betting Games · Quant Trader interview question · option-pricing, probability, expected-value, risk-neutrality, game-theory
You and a colleague are considering a simple coin flip game. If the coin lands heads, you pay your colleague 10 dollars. If it lands tails, your colleague pays you 10 dollars. Before the coin is flipped, you have the option to buy the right to cancel the game after the coin flip is revealed, but before any money changes hands. How much should you be willing to pay for this option? Assume a fair coin (50% probability of heads, 50% probability of tails) and risk neutrality. The option can only be