How much should I hedge?

Korchnoi · 02-09-2007, 02:49 PM

As I've said before, I moved all my sportsbook funds to TS and am taking a gambling sabbatical. I had a few outstanding futures, and I wound up winning one of those on skybet ($50 on the Colts to go all the way at +1000). I’ve got most of my rollover still to go there (call it $2500). Since they offer a free half point on basketball wagers placed Friday, and there’s only a couple of nationally televised games, I wound up putting the $500 on Cleveland -1.5 (moved to -1) at -110. It was the best option I had vs the Pinny lean when I placed the bet this morning. The line has since moved in my favor.

I’m considering hedging out some of my risk. Call me a cynic, but I don’t have a lot of faith that I’ll be able to get my money out easily if I do wind up meeting the rollover. I think I can make bets for fair using decent game selection and the half point, so the EV of my $500 on there is 500 skyBook dollars. If I do any hedging, it will be unagressive by joining the bid/offer on tradesports so assume I have zero expectancy on my hedge. Assume a Kelly level of risk aversion (lognormal utility curve). How much should I hedge?

(don’t say since I can hedge for free I should hedge all of it. The meat of the question is by how much you think I should discount my skybook dollars.)

Curious your thoughts, then I’ll tell you mine.

Arilou · 02-09-2007, 03:19 PM

Assuming that $500 is not going to have a major impact on you, your utility here is effectively linear. You've already stated that you can get fair value out of your bets, no more and no less. So at this point, the question is: What is the time you'd have to invest to find those fair bets, and what is that time worth to you, coupled with any risk to those funds? My guess is that you're using a relatively time-light method, so there's minimal cost involved there, so unless you think Skybook is a risk to not pay at this time you should likely value it at close to full value. I would not hedge at all.

Korchnoi · 02-09-2007, 03:28 PM

Quote:

Originally Posted by Arilou

Assuming that $500 is not going to have a major impact on you, your utility here is effectively linear. You've already stated that you can get fair value out of your bets, no more and no less. So at this point, the question is: What is the time you'd have to invest to find those fair bets, and what is that time worth to you, coupled with any risk to those funds? My guess is that you're using a relatively time-light method, so there's minimal cost involved there, so unless you think Skybook is a risk to not pay at this time you should likely value it at close to full value. I would not hedge at all.

I agree that since my methods are time-light, my continual rollover and possible hedging is neglible. I agree with your reasoning all the way to the end, except I would have come to the opposite conclusion -- that i should hedge it all. If my untility is totally linear than it's a push, if there's even some risk aversion I should hedge 100%.

Korchnoi · 02-09-2007, 09:04 PM

At any rate, I got held up at work and didn't hedge. Let's go, baby!

Korchnoi · 02-09-2007, 10:50 PM

Good for me, I won the first game. SkyBook settled the bet in time for the 10:30 Chi-town game, so I put $540 to win $500 on Chi-town by -1.5.

Korchnoi · 02-09-2007, 10:51 PM

is my bet good so far? not so much. I think 4 posts in a row counts as talking to ones self.

Ganchrow · 02-10-2007, 04:13 PM

Quote:

Originally Posted by Korchnoi

If my untility is totally linear than it's a push, if there's even some risk aversion I should hedge 100%.

If utility is totally linear then by definition there's zero risk aversion.

Korchnoi · 02-10-2007, 06:01 PM

Quote:

Originally Posted by Ganchrow

If utility is totally linear then by definition there's zero risk aversion.

Right. My point is if my utility is totally linear, then i'm i dont care if i hedge or not (so it's a "push"). if my utility is ever so slightly curved, then i should hedge 100%, therefore i should hedge. no?

Ganchrow · 02-10-2007, 06:34 PM

Quote:

Originally Posted by Korchnoi

Right. My point is if my utility is totally linear, then i'm i dont care if i hedge or not (so it's a "push"). if my utility is ever so slightly curved, then i should hedge 100%, therefore i should hedge. no?

My apologies. I had misunderstood the meaning of your comma (punctuation == the root of all evil).

Yes, assuming zero time-value-of-money, zero value-of Korchnoi-labor, and zero cost of hedging, I entirely agree with your appraisal.

Arilou · 02-10-2007, 06:36 PM

If the cost of hedging is zero, hedge. That's easy. If you have no interest in a game, no reason to risk anything... if you gain no benefit from it. But that's not true. In any given game, the chance that you can bet "for free" on a given side of that game is very low. Most of the time, you'll incur some cost, even with access to Pinnacle and Matchbook. Why sacrifice that vig if you don't have to?

Yes, your utility is slightly curved, but very slightly. Don't give up e.v. just for that, not with stakes this small.

Korchnoi · 02-10-2007, 07:18 PM

I'm not hedging by the way. This weekend, I am considering gambling for fair as "free entertainment."

I guess my question was if I do hedge, what % should I hedge. If I hedge 100% and I loose on TS adn win on Skybook i'm upset because i think i'll have trouble getting my funds back either because of the book messing with me or b/c it'll be hard or expensive to withdraw.

The number I feel is right is about 25% so I think my $500 had a value of like $375.