Consider the imminent apocalypse. The End of the World is given a meager 1000:1 odds:
Paddy Power is also offering a fairly skimpy 1/1000 that the sun will rise on the 22nd.Other betting sites offer only 500:1 odds. So, when someone says 'everyone thought' or 'no one thought', don't think this implies there was easy money. Even if the odds are as great as the absence of an apocalypse, you'll get something more like 500:1 with real money. Needless to say, this materially affects the expected value.
6 comments:
Hi, thank you for yet another informative post. I agree that sometimes we place a bet on things and over estimate our chance. This is the reason why I always lose on these kind of things. Oh well, never again..
Read this helpfull article:
https://docs.google.com/viewer?a=v&q=cache:9ONguyinLCsJ:www.fooledbyrandomness.com/Ilmanen.pdf+Do+Financial+Markets+Reward+Buying+or+Selling+Insurance+and+Lottery+Tickets%2Bpdf&hl=en&gl=be&pid=bl&srcid=ADGEESi_7ZTJo1NX18o1daV1CJpNaUZEsSt4SKI3U10Z34fWaO5AdwFMHSsoXnqKwzgbbFbA382sL-d_w-q_w6cZ0mPmYJ9WMnVdplMWjybfxFmQmaa9SK_-8SWdjvdxtm8wQCsVDg8Y&sig=AHIEtbTyGbFBHgSkiDmVtCr3Q5we6JcD6w
I am happy to write any amount of end-of-the-world puts if anyone would care to bid me.
I thought low delta options were a great way to profit from disordered black swans? When a giant meteor blows up the earth some option seller will become a very wealthy man overnight. Just imagine how VIX futures will skyrocket!!
Eric,
Have you considered turning on comment moderation? I enjoy your blog, and the real comments are generally excellent as well. The amount of "healthy skin" type spam is getting ridiculous though, and it really would just take a small change to fix.
Here's what you need to do: http://support.google.com/blogger/bin/answer.py?hl=en&answer=42537.
yeah, Google used to do a better job of eliminating spam, but for some reason they have been more successful lately. I turned on word verification.
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