Hey guys,

during the next weeks I should come up with a Topic for my Master Thesis in Finance. I want to write about a poker related topic.

First of all I thought about a real options approach in the context of poker. Basically this could explain the mathematics between aggression/caution depending on the stack size. For example is a top-pair at 20 blinds a strong hand, however at 150 blinds it needs to be played more cautious because it could be hard to fold later on. This is because there are options involved in the later stages of the game, call options for you (which add value of a decision) or call options for your opponent (which decrease value of your decision). Part of the underlying of the option is the stack size, however, this is only half the truth. Basically you need to come up with a certain payout-distribution to value the option. Consider a situation on the turn where your opponent has top pair (with no chances on full house) and you are hoping for the flush. This payout distribution has different parameters, the (minimum of two player) stack size, the chances of the option being in the money (=you hit the flush) and the chances of being able to exercise the option (=the other player calls your bet or makes a bet although you have the nuts). Now the last part is the tricky one and the reason why this ended up being far too complicated. Since you can only guesstimate when your opponent will "let you" exercise the option, its value is hardly possible to determine.


Any other thoughts on finance related topics on poker?

Using the game of poker I reckon it's possible to show how optimal strategy decays away any game in which it's applied. You've seen the decline of the poker market, well I think it's down to a misapplication of optimal strategy. It's very easy to understand and so I suspect you could prove it quite easily too... I'm talking through it on a thread in the theory section called, a question about game theory.

OP you may also find helpful advice in the Other Topics forum of Business, Finance, and Investing and Math, science, and philosophy.

This sounds like a linear programming problem. Optimize value within a set of constraints:

http://www.durangobill.com/LP_Options.html