March 25, 2011

Math Finance: To Gamble or not to Gamble

Post by:
Rob Pierce
Math Finance candidate

Math Finance: To Gamble or not to Gamble

Hey everyone, Rob here!

I have another blurb from my life as a Math Finance student this Spring. We were smack in the middle of our midterms 2 weeks ago, having completed 2 out of 4 them, when everyone decided enough was enough! So we all took a break for a week, each of us spending some time to recuperate and relax, some of us traveling farther away from Boston than others to do just that. Yes spring break was upon us, but just as quickly as it sprang upon us (pun intended), it also came to an end. Time for 2 more midterms!

So what did I do over my spring break? I studied for my classes, but I also had fun doing it; let me explain. Right now we are enrolled in an algorithmic trading class, where we are being bread to think in the fast paced world of letting our computers trade for us. In courses like this, it is becoming apparent that having some experience playing games like poker or blackjack, where probability takes over in our decision making process to make money, could be very important. It’s not a coincidence that many poker players seen on TV in the World Series of Poker were former traders and employees on Wall Street.

So I decided to try my luck, and with a couple of friends, went to Foxwoods Casino in Connecticut. There, we tried our luck at the poker and blackjack tables. It was very fun and exhilarating, but scary at the same time. You are putting your chips on the table, and trusting the odds that your hand beats your opponents’ hand (or in blackjack, the dealer). Sometimes things didn’t go your way, and sometimes things did, but in the end, if you rely on your best guess (the expected value), then, you have the best chance of winning (which is usually below 50-50). I would say that poker is the closest game that we played to trading and finance, because you are competing against several other players at the same time. You have to constantly be updating your perception of how good your hand is, based on the bets made by the other players, and the extra cards that are being put on the table. You can also bluff, and push the other players at the table to believe something that is not true, which is akin to pushing the market by moving a lot of shares, for instance.

All in all, I would not recommend going to the casino to everyone, because they are very good at taking your money, and it can be very nerve racking for people who are risk averse. It was, however, a fun and educational experience, and I’m glad that I went!

Thus, that is how I studied for my classes, and enjoyed it too! Sometimes it’s a good idea to find the unusual ways to get your work done, which helps you appreciate the material you are working so hard to learn, just a little bit more.

Now, it’s back to the usual form of studying!

Until next time,

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