macrocephalopod

Corey and his team's work has been like that to me coming from options land. Anyway, this is just a collection of thoughts aloud that will make its way into something I'm working on. Happy Friday, go Niners (as a NY Giants fan feels weird to write that but I got SF kids)

I can't wait for this post Kris! Think the link between mean-reversion / trend following and convexity is v fascinating – "mechanical convexity" as corey says. Though at the same time I'm interested in the limits of the idea, and a bit sus of the idea that TF gives ...

convexity in practice. I've seen the paper "proving" that they are the same, but the empirical evidence doesn't seem that convincing to me? As you mention in a separate comment, the inability to replicate jumps seems pretty impactful

The discontinuity thing is a big deal. Hard options vs soft options is a big deal. Think of a tail option and wonder...what is the probability of going ITM and how many of the paths that cause it include market gaps.

Another thing is that the derivation of the trend-convexity equivalence seems to rely on quite a particular TF scheme. I don't know too much about TF in real life – maybe that's how they do it – but it just seemed a bit contrived.

i always read that paper as "hey this is a nice conceptual linkage on a certain level" rather than as a true equivalence.

Good point! I guess at the end of the day it’s basically an empirical question as to how much convexity TF provides

also, just because something has convexity, doesn't mean it has the same type as a vanilla. like people want to equate the changing leverage of an option position with the kelly criterion even though the leverage doesn't change in the same way