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If you look at it in terms of risk-adjusted returns (Sharpe ratio), a fixed transaction fee costs more Sharpe on a low-variance bet than it does on a high-varia
by Akababa 6y ago
If you look at it in terms of risk-adjusted returns (Sharpe ratio), a fixed transaction fee costs more Sharpe on a low-variance bet than it does on a high-variance bet. The variance of balanced contracts is higher than the variance of unbalanced ones (p(1-p) is concave with maximum at p=0.5), so after adjusting for risk the transaction fee is more significant for the unbalanced contract.
- nstj 6y agowhat’s a ‘balanced’ contract?
- virgilp 6y agoI would be guessing that it's one where equal amounts of money are bet on each side/ there's a 50% probability of the result going either way.
- IfOnlyYouKnew 6y agoA market where expected returns are 1, I. e. the implied probabilities sum to 100%