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>Robert Mercer, the former co–chief executive of Renaissance Technologies, allegedly told a friend that Medallion was right 50.75 percent of the time when it ca
by hash872 7y ago
>Robert Mercer, the former co–chief executive of Renaissance Technologies, allegedly told a friend that Medallion was right 50.75 percent of the time when it came to its millions of trades — adding that “you can make billions that way.”
Totally not a finance guy, but how can this be true with drawdowns? The losses are worse than the gains- if you had $100 and take a 33% loss, it would take a bit more than a 50% gain to get back to where you were. 50% loss and you'd need to double your money to get back, etc.
So.... with drawdowns, don't you need to be right more than 50.75% of the time?
- tomatocracy 7y agoBecause you don't bet the entire fund on every trade.
- papln 7y agowith drawdown on simple bets, the average compounding step per play, for a given edge and bet size, is ((1+bet)^(0.5+edge))*((1-bet)^(0.5-edge))) = ((1-bet^2)^0.5 * ((1+bet)/(1-bet))^edge For a given bet size, there's room to make your edge large enough (without exceeding 0.5) to make the (>1) right-side factor overwhelm the (<1) left side. https://www.wolframalpha.com/input/?i=log%28%281-b%5E2%29%5E0.5+*+%28%281%2Bb%29%2F%281-b%29%29%5Ed%29%2C+for+0%3Cb%3C0.1%2C+0%3Cd%3C0.5 https://www.wolframalpha.com/input/?i=log%28%281-b%5E2%29%5E...
- dogman144 7y agoVirtu financial does this approach, very successful. Its SEC forms explain things better.
- tomp 7y agoNo, you bet 100 x $1, win 50.75% of the time, so you make $1.5 in profit. Now repeat 1bn times.
- hash872 7y agoBut if you're losing (undefined amount of money) on 49.25% of the trades....