The book offers step-by-step instructions, with explanatory, charts and tables, whereby anyone with 2000.00$ brokerage account can conduct his own investment program. Details are given of actual investments made by the authors, one of whom more then doubled $100,000 in five years.
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Most Helpful Customer Reviews
75 of 83 people found the following review helpful
By A Customer
Format:Hardcover
The basic premise of this book is to long stock and delta hedge w/ out of the money warrants. This was great when the tax incentives encouraged corporations to sell bonds w/ detachable warrants rather than selling convertible bonds. In addition, valuing the warrants was tricky prior to the use of the Black-Scholes model. This strategy - delta neutral covered calls - is profitable when the market has peaked out but you can get your handed to you if you employ it in a scenario such as '99-'00. Further their reocmmendations that you short more as your warrants fall is very dangerous - shorting a lot of gamma. The warrant game played itself out and the authors made a a lot of money. This is a very interesting book written by a very profitable hedge fund manager, but I would not recommend attempting to replicate this strategy w/ LEAPS. Pricing is much tighter now so your margin of error has dramatically decreased
22 of 23 people found the following review helpful
By Bachelier
Format:Hardcover
The strategies in this wonderful book are only employable in Asia now, and in very limited ways (often insurance and bank stocks and bonds) but you take a lot of liquidity risk, so I'm not sure if you are still paid alpha over an expected return.
Still, a marvellous read. Pre-dates the Black-Scholes by five years, but in a replicating portfolio no-arbitrage method (which implies a lognormally distributed expected equity return) which Thorp then correctly pointed out was arbitrageable.
This book also serves as a curious filter rule. Those who read this and understand the old world and Thorp's method most likely can see current methods and models and break them down and differentiate them into tractable and fantasy. Credit structures who've relied on standard cash-flow and default probability metrics would have done well to start with Thorp to see how what they construct can be de-constructed by clever boots who see both the strengths of the original construct, and the copula methods and correlation assumptions in the structure (and its decay) to make arbitrage opportunities. In other words; if they read Thorp and "get it" they have a lower likelihood of being hoodwinked going forward.
Still, a marvellous read. Pre-dates the Black-Scholes by five years, but in a replicating portfolio no-arbitrage method (which implies a lognormally distributed expected equity return) which Thorp then correctly pointed out was arbitrageable.
This book also serves as a curious filter rule. Those who read this and understand the old world and Thorp's method most likely can see current methods and models and break them down and differentiate them into tractable and fantasy. Credit structures who've relied on standard cash-flow and default probability metrics would have done well to start with Thorp to see how what they construct can be de-constructed by clever boots who see both the strengths of the original construct, and the copula methods and correlation assumptions in the structure (and its decay) to make arbitrage opportunities. In other words; if they read Thorp and "get it" they have a lower likelihood of being hoodwinked going forward.
24 of 26 people found the following review helpful
By J. Rensink
Format:Hardcover
E. O. Thorp has made a tremendous career from finding opportunities and properly exploiting them as advertised in this ground breaking book. There is no one in the financial world who has had a better risk-adjusted return than Thorp for the last 30 years.
Virtually unknown is the fact that years before, Thorp invented/discovered the formula that is attributed to Black-Scholes, with the exception of the risk-free interest rate factor, because of existing market structure that prevented interest from being a factor.
And Thorp's treatment of the Kelly Criterion makes this a standout work.
Since many have never read this book yet or tried to apply the principles that Thorp revealed in this book, it would be easy to dismiss this as some worn-out idea that has come and gone. Far from it. There is a reason that the few copies that were printed are still in demand.
The old saying is that those who can, do - while those who can't, teach. Thorp proved that he was the former.
If the principles from the book are understood the execution in different markets becomes apparent. In the last 20 years, I have applied the method in different forms in stocks, futures markets and LEAPS, with returns that exceeded the benchmarks stated in the book, with the same relative safety factors.
As long as there are people making investment decisions; who change their views as to whether a tradeable is cheap or dear, the opportunity for this method will remain infinite.
The concept IS the thing.
Virtually unknown is the fact that years before, Thorp invented/discovered the formula that is attributed to Black-Scholes, with the exception of the risk-free interest rate factor, because of existing market structure that prevented interest from being a factor.
And Thorp's treatment of the Kelly Criterion makes this a standout work.
Since many have never read this book yet or tried to apply the principles that Thorp revealed in this book, it would be easy to dismiss this as some worn-out idea that has come and gone. Far from it. There is a reason that the few copies that were printed are still in demand.
The old saying is that those who can, do - while those who can't, teach. Thorp proved that he was the former.
If the principles from the book are understood the execution in different markets becomes apparent. In the last 20 years, I have applied the method in different forms in stocks, futures markets and LEAPS, with returns that exceeded the benchmarks stated in the book, with the same relative safety factors.
As long as there are people making investment decisions; who change their views as to whether a tradeable is cheap or dear, the opportunity for this method will remain infinite.
The concept IS the thing.
Most Recent Customer Reviews
5.0 out of 5 stars
The Hedge Fund Framework
The framework of the one of the first hedge funds. Profiting from arbitrage which is very difficult today but was ingenious when this was written in 1967. Read more
Published 3 months ago by Louis Ebner
4.0 out of 5 stars
Good introduction to hedging
This is a well-written book presenting a hedging system that uses stocks, warrants and other convertible securities. Read more
Published 4 months ago by Ratatosk
1.0 out of 5 stars
Why is this book a Kindle item -- when not available on Kindle?
This book is listed as a Kindle item, but there is no Kindle price stated and apparently no way to get it "wirelessly delivered. Read more
Published on February 21, 2010 by Charles Hagen
5.0 out of 5 stars
Interesting and workable strategy for thinly traded warrants
Agree with much of the prior review. That said, if you can find thinly traded warrants (i.e., where there is less pricing efficiency due to the low trading volume), this book... Read more
Published on April 24, 2003
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