A prior implied probability of 20% that there will be a coup means Mars would pay 0.2 for shares that pay out 1.0 if there is a coup. Multiply both sides of the equation by M (1 million). It costs Mars 0.2M to buy shares that pay out 1M if there is a coup. Multiply both sides of the equation by another 5. It costs Mars 1M to buy shares that pay out 5M if there is a coup.
If Mars pays 1M to buy shares that pay out 5M if there is a coup then Mars pockets 5M − 1M = 4M.
A prior implied probability of 20% that there will be a coup means Mars would pay 0.2 for shares that pay out 1.0 if there is a coup. Multiply both sides of the equation by M (1 million). It costs Mars 0.2M to buy shares that pay out 1M if there is a coup. Multiply both sides of the equation by another 5. It costs Mars 1M to buy shares that pay out 5M if there is a coup.
If Mars pays 1M to buy shares that pay out 5M if there is a coup then Mars pockets 5M − 1M = 4M.
Yes, but you said they’re buying the no-coup shares, which subsidizes a coup. Article contradicts itself.