Implied Probability Interview Questions
Implied probability interview prep for inferring probabilities from prices, odds, payoff contracts, and market-making quotes.
Candidates preparing for market-making and betting-style interviews.
Probability from price
For a toy contract paying 1 if an event happens and 0 otherwise, a price of p implies a break-even probability of p.
Compare with your estimate
The edge in an interview toy model comes from comparing implied probability with your estimated probability.
Concrete example
If a contract costs 0.40 and pays 1 on success, the implied probability is 40 percent before fees, spread, or other adjustments.
Market-making context
A bid and ask can imply a range rather than one probability. The midpoint may be a rough fair-value anchor in simplified prompts.
Margin and costs
Real quotes can include spread, fees, inventory, and risk adjustments. Do not treat every observed price as a pure probability.
Common mistakes
Candidates often compare implied probability with intuition without checking payoff size. Price only maps cleanly to probability when the payoff is specified.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.