Thorp / Regan · 1969–1988
Convertible Arbitrage
Convertible Arbitrage · PNP
Thorp took Kelly to Wall Street: Princeton-Newport ran convertible arbitrage at half-Kelly, and for nineteen years posted seventy-six straight positive quarters — never a losing one.
← All applications
Arbitrage edges are thin while estimation error is real. Half-Kelly (½ f*) gives up 25% of growth for half the volatility and cuts ruin probability from 50% to about 10% — the seatbelt for a thin-edge, high-frequency compounding strategy.
| KELLY FRACTION | GROWTH KEPT | VOLATILITY | LONG-RUN SURVIVAL |
|---|---|---|---|
| Full | 100% | 100% | ~50% |
| Half | 75% | 50% | ~90% |
| Quarter | 44% | 25% | >99% |
Nineteen years of discipline
Thin edge + high frequency + fractional Kelly = 76 straight positive quarters, no losing quarter.