3 ms·

When I was a young guy who happened to be partner in a hedge fund, I used to ask candidates about this. I kinda regret it now. I'm not sure what I was trying t

When I was a young guy who happened to be partner in a hedge fund, I used to ask candidates about this. I kinda regret it now. I'm not sure what I was trying to find out from people. I guess in some way it's a cultural question masquerading as a technical question, because it reveals whether you've heard of it and whether you have heard of the standard stuff that's said about it: - Don't do full Kelly because if you're on the wrong side (too big bets) that's definitely bad. - Depends on the probabilities being static. - You can find a continuous form of it. You can also find the implied leverage from the Sharpe ratio. I wonder if my memory is even correct on these. But the point remains that it's not terribly useful as a thing to evaluate people with. I guess the question "How do you size your positions?" needs to start somewhere.

sohei 5y ago
> I guess the question "How do you size your positions?" needs to start somewhere. Maybe the question itself is a good place to start. If someone asked me about Kelly, my mind would immediately drift from "statistical models and dynamic programming" to something else. The real engineering problem is threefold: (1) how do I model my return generating process, (2) what is my utility function, and (3) do the first two steps yield a tractable Bellman equation? If the problem is framed right, most people will have something to say about 1 and 2. The third part is tricky. A real world solution will involve finite element methods. But in an interview, people may be hesitant to bring up approaches that don't yield closed form solutions. That's what's special about Kelly. It's assumptions for steps 1 and 2 that produce a closed form solution in step 3.