Wednesday, September 7, 2011

Edward Thorp on Beating the Biggest Dealer of All: the Markets

See below for a link to an interview with Edward Thorp, famed investor and card-counting expert:

Thorp's interview makes clear that his "quant" strategies enjoyed early success but their advantages were ultimately chipped away by other sophisticated market participants.  Interestingly, he claims to have enjoyed an advantage by employing an early version of the Black Scholes formula.  This makes me wonder if his advantage was truly quantitative or whether he had simply recognized that options were mispriced based on prevailing risk.  So often it seems that economists and academics want to quantify insights which do not necessarily benefit from further quantification.  In any event, far be it from me to question Thorp, who above all is a first class mind. 
    Most interestingly, he claims to now be focused on the question of whether a basket of treasury bills, a stock options index, and options on the index can be used to improve the portfolio's performance against the same basket without the options.  I'm going to give some thought to this myself and report back.

No comments:

Post a Comment