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Time value of money
Yesterday Fezzik posted that the Total for the BCS Championship game was too high at 48.5. He was right, of course, and it is now down to 47.
Fezzik's call got me thinking about the time value of money. How big a perceived edge do you need to tie up your money for four weeks? This isn't like the stock market, where you can sell at 48.5, buy it back at 47, close out your position, and put your money back to work. If you hedge your Under 48.5 with Over 47, you aren't flat, you have two bets and now twice as much money tied up. (Yes, I understand a non-arbitrage hedge is generally -EV and I'm not suggesting someone who has Under 48.5 do this.) Is there a mathematical solution to my question or do you guys go by feel? (If someone is a crappy gambler, perhaps it's +EV for them to tie up their money for a month if they have a deep edge!) |
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