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> I met a drove of Jane Street interns who thought exactly the same way, in terms of "EV" or expected value It's interesting that you say that. When I read the
by c7b 4y ago
> I met a drove of Jane Street interns who thought exactly the same way, in terms of "EV" or expected value
It's interesting that you say that. When I read the article claiming that a trader should be neutral between $50 and $100 with 50%, I saw that as an oversimplification for dramatic effect. But what you describe seems like they actually thought like that, which strikes me as bizarre. If you lose your entire budget, it doesn't matter that your winning probability was >50%, so you should always adjust the size of your bets to the size of your budget. While it practically doesn't matter, of course, when people on 6-digit salaries gamble over $10 ice cream, it makes a difference in principle (and the whole purpose of the exercise seems to have been to instil a principle). I'd have expected them to drill their interns on some variation of a Kelly criterion.
- polygamous_bat 4y agoWhile Kelly style analysis makes sense for investors like Buffet or Dalio, who bet a significant portions of their wealth on certain positions, for Jane Street it doesn't make much sense. That is because Jane Street makes most of their money in millions of really small trades either in market making, arbitraging, or front-running other trades every day. For these, every trade, profitable or not, is necessarily a miniscule portion of their capital. Good to remember that the business that blew up in SBF's face was Alameda the prop trading desk, and not FTX, the exchange and the market maker. Seems like he did learn his lessons in EV well, it just wasn't good enough for bets over a certain size.
- c7b 4y agoHaha, well it seems that overlooking the ruin probability is exactly what was missing from both SBF's effective altruism 'life calculus', as well as the risk management in his fund. It appears that he really inhaled the EV thinking that he learnt at Jane Street and took it to the extreme - and the outcome was exactly what basic stochastic process theory would have predicted. That was really insightful, thanks for sharing that anecdote! The whole story would be worthy of a Greek tragedy - rise and fall of a kid blessed with an almost supernatural gift, with just a tiny yet catastrophic flaw - the proverbial Achilles heel.
- huveja 4y ago"supernatural gift"? He's probably smart, at least that's what his MIT degree would tend to show.. but supernatural because he took advantage of the price difference in Bitcoin between Japan and the USA? .. that was just taking advantage of what he was trained for on Jane Street, nothing supernatural there .. that worship for someone who makes money speculating is what shows the decay in our society .. for me someone with a supernatural gift is Newton for example ..