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seen Dec 9 '11 at 21:53

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comment How to apply the Kelly criterion when expected return may be negative?
Well, first you have to be aware that no amount of backtesting will give you probabilities or confidence intervals that hold into the future. Second, if you genuinely have an edge because you know something the market doesn't, then the nature of that edge should dictate how to measure it. Finally, the Kelly Formula is correct in its closed form in poker and is only a hint in capital markets, because the payoff structures are different. You need to come up with a kelly-inspired optimization that corresponds to your trading strategy and market assumptions, and there's no pretty formula for that
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answered How to apply the Kelly criterion when expected return may be negative?
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comment Value of option-free instruments with a short-rate model vs the spot curve
Sorry if it wasn't clear. in this example, you use something like the hull-white model, and lay out a tree of possible rates, and discount probability weighted values back to the root node. I know this is useful for options because on the extremes of the tree, as the value of the instrument gets extreme, you may exercise optionality and adjust in a way that you can't with discounting cashflows with a SINGLE static curve. Why then do people take the tree approach with a short rate model also when there's no optionality?
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revised Value of option-free instruments with a short-rate model vs the spot curve
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answered Why is volatility mean-reverting?
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asked Value of option-free instruments with a short-rate model vs the spot curve
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accepted Is Duration really the slope of the Price-Yield curve?
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asked How to handle coupon payments when pricing a bond with an embedded option?
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revised Is Duration really the slope of the Price-Yield curve?
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revised Is Duration really the slope of the Price-Yield curve?
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asked Is Duration really the slope of the Price-Yield curve?