Why a request is priced and then refused
A refusal is not one behaviour. A request can fail because the combination cannot be modelled at all, because it can be modelled and the price is worse than the operator will offer, because a leg rests on a fact nobody will confirm, or because the legs are so tightly linked that no joint price is meaningful.
- requests
- 500
- accepted
- 218
- refused on price
- 96
- never priced
- 131
A refusal has four causes and they are not interchangeable. Of 500 requests in sample B, 131 could not be modelled at all and 96 were priced and refused - the 96 dividing into 38 with no model for the combination, 27 below the minimum accepted price, 19 resting on an unverifiable statistic and 12 whose legs were correlated beyond the limit.
Refused is not the same as impossible
The 131 requests that were never priced were never going to be: no model covered the combination, or no market existed for one of the legs. The 96 that were refused are a different thing entirely. A price was produced, it was a real price for a real risk, and the operator declined to offer it. That is a commercial decision about the shape of the book, and it is the only one of the four reasons that could have gone the other way.
What the samples show
| Reason | Requests | Share of the 96 | What the reader could have done |
|---|---|---|---|
| No model for the combination | 38 | 39.6% | Nothing: the market did not exist |
| Price below the minimum accepted | 27 | 28.1% | Ask for fewer legs or a shorter stake |
| A statistic the operator cannot verify | 19 | 19.8% | Restate the leg on a settled statistic |
| Correlation beyond the accepted limit | 12 | 12.5% | Nothing: the legs are too close to one outcome |
| Every priced-then-refused request | 96 | 100% | 84 of the 96 could have been re-asked |
Why the reasons are worth separating
A reader who is told only that a request was refused cannot tell whether to ask again with smaller legs, to reword a leg onto a statistic the operator settles, or to stop asking. The four reasons have four different answers: the first and the fourth are dead ends, the second is a question about size, and the third is a question about how the leg was written. None of the forty terms pages in sample F distinguishes them, and 7 state only that a request may be refused.
- Ask which of the four reasons applied. The answer decides whether asking again is worth anything.
- If the reason is price, ask for the same combination at a smaller stake rather than for a shorter combination.
- If the reason is an unverifiable statistic, restate the leg on a statistic the operator settles - and note that the price will change with the wording.
- If the reason is correlation, stop: a set of legs that close to one outcome is not a market, whatever it is called.
- Keep the refusal. A refusal that is not recorded cannot be distinguished later from a request that was never answered.