Edward Thorp, has a doctorate in mathematics and PhD in physics, entered the markets attracted by gambling, but not betting in a conventional way, normally casino gambling has a negative side for the player, and the more time is played, the greater the possibility of financial ruin, this type of game is the antithesis to what Thorp was interested, Thorp was in fact extremely adverse to the risk as a result of having grown during the Depression. Thorp’s goal was to seek to eliminate the part of chance in bets, tried to devise strategies that would place the advantage in their favor in the casino games, task that at first seemed impossible, surprisingly succeeded in developing strategies to obtain a Significant advantage in several casino games, including blackjack, baccarat and roulette, ironically devising strategies to win in what was always supposed to be unbeatable games, was easier than executing them.
Thorp had successfully negotiated a statistical arbitrage strategy since the mid-1980s, in 1992 he was asked to direct the strategy for a large institutional client, two years later, he founded his second hedge fund, Ridgeline Partners, to open the strategy of statistical arbitrage to other investors.
Ridgeline was quoting very actively, averaging around 6 million shares a day and representing approximately 0.5% of the total volume of NYSE, Thorp used this strategy for 10 years, obtaining an average of 21% annual compound yield with only 7% of annualized volatility, this being a remarkable record.
After closing Ridgeline in 2002, Thorp spent his time managing his allocations to other hedge funds, also developing a trend tracking system, which he marketed from late 2007 to early 2010. He is currently employed at IBM.
Originally posted 2020-11-25 08:48:30.