investment lessons from blackjack and gambling

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1、CHAPTER17investmentlessonsfromblackjackandgamblingInthisChapter...•therulesofblackjack•blackjackstrategyandcardcounting•theKellycriterionandmoneymanagement•noarbitrageinhorseracing17.1INTRODUCTIONWhenIlectureonportfoliomanagementandthemathematicsofinvest

2、mentdecisionsIoftenstartoffwithadescriptionofthecardgameblackjack.Itisaverysimplegame,onethatmostpeoplearefamiliarwith,perhapsbythenameofpontoon,21orvingtetun.Therulesareeasytoremember,eachhandlastsaveryshorttime,thegameiseasilylearnedbychildrenandcouldw

3、ellgivethemtheirfirsttasteofgambling.Forwithoutthisgamblingelementthereislittlepointinplayingblackjack.Sincetherulesaresimpleandtheprobabilitiescanbeanalyzed,blackjackisalsotheperfectgametolearnaboutrisk,returnandmoneymanagementand,perhapsmostimportantly,

4、tohelpyoulearnwhattypeofgambleryouare.Areyouriskaverseorariskseeker?ThisisanimportantquestionforanyonewholaterwillworkinbankingandmaybegamblingwithOPM,otherpeople’smoney.Despiteblackjackbeingperfectforlearningthebasicsoffinancialriskandreturn,anddespiteba

5、nktrainingmanagerslikingtheideaofpeoplebeingtrainedinriskmanagementviathisgame,Iamalwaysaskedbythosetrainingmanagerstochangethetitleofmylecture.‘Youcan’tcallyourlecture“InvestmentLessonsfromBlackjackandGambling,”we’llgetintotroublewith[regulatorgoeshere]

6、.’Thisisabitsilly.Anyonewhodoesn’tthinkthatinvestmentandgamblingsharethesamerootsissilly.IcanevengosofarastosaythatmostprofessionalgamblersthatIknowhaveabetterunderstandingofrisk,returnandmoneymanagementthanmostoftheriskmanagersIknow.Inthischapterwewills

7、eesomeoftheideasthattheseprofessionalgamblersuse.302PartOnemathematicalandfinancialfoundations17.2THERULESOFBLACKJACKPlayersatblackjacksitaroundakidney-shapedtable,withthedealerstandingopposite.Abird’seyeviewisshowninFigure17.1.Beforeanycardsaredealt,thep

8、layermustplacehisbetinfrontofhistableposition.Thedealerdealstwocardstoeachoftheplayers,andtwotohimself(oneofthedealer’scardsisdealtfaceupandtheotherfacedown).Thisisthestateofplayshowninthefigure.Courtcards(kings,queensandja