Kelly and the Playoffs

[donjuan]

Let's say that in the NHL or NBA playoffs you expect $1k of EV per game (for the sake of the problem, bets are at +100) and you have a bankroll of $100k. However, sometimes a series will only go 4 or 5 games and you lose the EV of having games 6 and 7 played. Would Kelly call for hedging against short series? Also, you find that a certain team to sweep is at fair value (let's say you also find u5.5 games is at fair value). How much should you be betting on that?

[Blax0r]

Tough problem, but very practical.

Can we assume p(6 games | 5 games played and no winner) = p(7 games | 5 games played and no winner) = .5?

[buby74]

I would bet as normal to maximise my bankroll for the next game even if that isn't until the first game of the next season

[Pancho sanza]

Small hedge warranted, using hypothetical inputs.

Did this quick so please let me know if theres any errors.

[That Foreign Guy]

It doesn't take much -ev to remove the benefit of hedging though

Even odds of 1.99 and 7.96 vs true lines of 2 and 8 only justify $300 of hedge action rather than $500.

I'd probably err on the side of caution and only 0EV or better hedge.

[Dark Horse]

I don't see how hedging and Kelly can walk through the same door. One guarantees, the other maximizes profit. Every time you guarantee a profit through hedging, you lower your maximum profit. You also lower your exposure. Nothing wrong with trading out of positions, through whatever construction, for a profit or minimized loss. I would consider that the smart thing to do. But I'm not lighting candles at the Kelly altar.

[wiffle]

i don't see how hedging and kelly can walk through the same door. One guarantees, the other maximizes profit. Every time you guarantee a profit through hedging, you lower your maximum profit. You also lower your exposure. Nothing wrong with trading out of positions, through whatever construction, for a profit or minimized loss. I would consider that the smart thing to do. But i'm not lighting candles at the kelly altar.

eg>>>>>>>>>>>>ev

[donjuan]

Thanks Pancho. I also agree with TFG's conclusion.

DH,

You've never really understood Kelly so it's no surprise you don't understand that hedging and Kelly can and often do go together because Kelly is very much about bankroll preservation (something ignored by the Kelly haters). Here is a blatantly obvious example:

You have a $5k bankroll and someone offers you +105 on heads on the Super Bowl coin flip with a $5k limit because they've taken so much action on tails. Your astute friend comes in and offers you -101 on tails for as much as you want. If you ignore any hedge (the -EV bet), your Kelly stake is $119.05 and your EG is $1.49. But you can make a lot more than that by simply arbing (where EV=EG). And the optimal Kelly solution is actually $2500 on each side.

[Dark Horse]

As already mentioned, I agree with the principle. And no, I have not read that interpretation of Kelly before. I would just call it common sense. Or maximum profit for minimum exposure.

[u21c3f6]

Thanks Pancho. I also agree with TFG's conclusion.

DH,

You've never really understood Kelly so it's no surprise you don't understand that hedging and Kelly can and often do go together because Kelly is very much about bankroll preservation (something ignored by the Kelly haters). Here is a blatantly obvious example:

You have a $5k bankroll and someone offers you +105 on heads on the Super Bowl coin flip with a $5k limit because they've taken so much action on tails. Your astute friend comes in and offers you -101 on tails for as much as you want. If you ignore any hedge (the -EV bet), your Kelly stake is $119.05 and your EG is $1.49. But you can make a lot more than that by simply arbing (where EV=EG). And the optimal Kelly solution is actually $2500 on each side.

In these situations (being the conservative person that I am), I actually stray from Kelly a little and would wager $2460 on +105 and $2534 on -101. Even though this is not Kelly optimal, I am willing to give up a little in long-term growth for the guaranteed return.

Joe.

[Thremp]

DH,

If you already "knew" this, why did you make a post that directly counters this before?

Joe,

wai u h8 monies?

[u21c3f6]

...
Joe,

wai u h8 monies?

Thremp, I don't hate money, I am just more risk averse than my need for additional money. It's the same reason why I use half-Kelly and the same reason why I would never consider my "bankroll" to be my entire net worth as some have suggested.

Joe.

[Dark Horse]

DH,

If you already "knew" this, why did you make a post that directly counters this before?

Where is the contradiction? In my calling it common sense instead of Kelly?

[Thremp]

I don't see how hedging and Kelly can walk through the same door. One guarantees, the other maximizes profit. Every time you guarantee a profit through hedging, you lower your maximum profit. You also lower your exposure. Nothing wrong with trading out of positions, through whatever construction, for a profit or minimized loss. I would consider that the smart thing to do. But I'm not lighting candles at the Kelly altar.

This is nonsense.

[luegofuego]

As already mentioned, I agree with the principle. And no, I have not read that interpretation of Kelly before. I would just call it common sense. Or maximum profit for minimum exposure.

What interpretation of Kelly have you read, if not exactly that?

[Pancho sanza]

It doesn't take much -ev to remove the benefit of hedging though

Even odds of 1.99 and 7.96 vs true lines of 2 and 8 only justify $300 of hedge action rather than $500.

I'd probably err on the side of caution and only 0EV or better hedge.

The amount of the pending win relative to the size of ones bankroll matters too.

A negative ev hedge, even -3 or -4 %, is the kelly optimal strategy if one is sitting on a pending win thats say 1/3rd the value of his bankroll.

The odds of the pending win matters too, the lower the probability, the more attractive a negative ev hedge becomes.

[That Foreign Guy]

The amount of the pending win relative to the size of ones bankroll matters too. A negative ev hedge, even -3 or -4 %, is the kelly optimal strategy if one is sitting on a pending win thats say 1/3rd the value of his bankroll. The odds of the pending win matters too, the lower the probability, the more attractive a negative ev hedge becomes.

Right.

I should have been clearer that I was talking specifically about the case in the first post where the playoff game expected win per game was 1% of bankroll and we were considering hedging against the possible "loss" of not having 7 games.

If we're talking managing futures positions more generally I still err on the side of trying to only have +EV hedges or negatively correlated bets. However, I haven't yet been in a situation where I was facing a massive potential payoff so haven't had to do that math.

[Thremp]

I did that on the NBA. Then the Mavs won. Whoops!

[CHUBNUT]

you guys ever get a feel for a play in your nuts or are you like justin, cant see the play for the tv screens and math gobbledygook

that being said anything pancho says is gospel

why not chill out and take some -EV now and again just to make yourself feel human and possibly be able to smile on a video

[donjuan]

Seriously, stop posting and seek help.

[wiffle]

^^^^^^^^^

[sharpcircle]

you guys ever get a feel for a play in your nuts or are you like justin, cant see the play for the tv screens and math gobbledygook

that being said anything pancho says is gospel

why not chill out and take some -EV now and again just to make yourself feel human and possibly be able to smile on a video

im impressed you can type

[BigFish]

you guys ever get a feel for a play in your nuts or are you like justin, cant see the play for the tv screens and math gobbledygook

that being said anything pancho says is gospel

why not chill out and take some -EV now and again just to make yourself
feel human and possibly be able to smile on a video

Ok you win! I promise next time my nuts tell me to make a -EV play, I'll listen to them, and make the bet. Everyone else here should too.

[HedgeHog]

Thinking with your privates can make your entire life -EV.