Questions / Quant trading, Sizing & risk
Preserve a reserve through two losses
Wealth is 100. In each of two rounds you stake the same fraction f of current wealth and lose the stake on a loss. To retain at least 64 even after two losses, what is the maximum f? Enter a percentage.
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Answer: 20% (1/5)
- After two losses wealth is 100(1−f)². Requiring this to be at least 64 gives 1−f≥0.8 and f≤20%.
Interview shortcut. (1 − f)² ≥ 0.64, so 1 − f ≥ 0.8.
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