I am trying to figure out the method of calculating house edge for example in the game of Baccarat here.
The probability of player winning is 44.6246609343597% and the payout is 1 to 1. For house is 45.8597422632763% and the payout is 0.95 to 1. (5% commission). What does it mean by house edge and how is it calculated?
To be more specific
I know how to work out the probabilities here, I am asking how to work out the number 1.24% of the house edge on the player.
As a plus, how are the STANDARD DEVIATION calculated?
Thanks.
Edge = expected value of a bet from the house's perspective.
The expected value of a bet on "player" from the gambler's perspective (probability win * payout - probability lose * 1):
44.6246609343597 - 45.8597422632763 = -1.24%
For the house edge, we just need to flip the sign: 1.24%. Meaning, for every 100\$ wagered on player, the house is expected to win 1.24\$.
For a bet on "gambler":
45.8597422632763 * 0.95 - 44.6246609343597 = -1.06%