Nonlinear5, the recursive solution avoids the combinatorial explosion. The way it is implemented is via a Bellman equation (more here:...
Dividends can result in different IVs for calls and puts (dividends can change the effective moneyness and expiration). Also, if a stock is hard...
They are equivalent. W(0) is just a constant. Max E[log(W(N)/W(0))] is the same problem as max E[log(W(N))]. You can pull W(0) out of the...
I have seen this type of game offered as a promotion from betting sites like Bodog. For example, "Open a new account and bet up to $1000 on the...
Well, I'm not suggesting to bet your entire worth, just to take it into account deciding the optimal wager. There is no "correct" answer here...
That's correct. If W is large (say $1mn), I believe betting $1,000 on R16 maximizes the expected log of liferoll in your one-spin example. Goal:...
Agreed that 100% would be wagered, but the allocation across bets would vary. The arbitrage has a lower expected return than the riskier R-16....
Treat B_9 as a variable and solve for the optimal xj_10 as a function of B_9. It gets cumbersome quickly. That's why I was suggesting maximizing...
For a utility function, you could still use expected log of terminal wealth. This is a constrained maximization problem, where the key constraint...
Suppose you are worth $1,000,000. Suppose you can bet up to $1,000 on just one spin, with the same odds given in the OP. How much would you bet?...
Thanks for the link. I am familiar with the Kelly criterion (have an economics phd, studied dynamic programming problems like this ad nauseam in...
Only had time to browse a few pages, but what struck me was that everyone seemed to assume the optimal strategy does not change with spin number....
I'd be curious to hear about the events that led you to the wisdom in your post.
Trading is so hard, I could explain my edge to 99% of people, and they still wouldn't make money on it, let alone find the edge to begin with.
FAZ = -1 x FAS intraday SKF = -2/3 x FAS intraday If you want the same volatility, just buy more shares. I don't understand the need to short...
Tomorrow, I think we'll finally get a selloff. I rarely buy puts, but with the VIX at 24.30 and the market short-term overbought, I couldn't help...
Fifth grade sex ed class, I raise my hand and ask, "How do you know when you're done?" (Having sex, that is.) After lots of laughter (I was...
You must be swinging a massive line if SPX vol makes a difference to your trading.
Short ES Long ZB Looking forward to tomorrow.
Yes, one leg of the trade is to short the JGB futures, which is effectively a fixed-to-floating swap with the borrowing done in yen. The second...
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