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Special K

Published in Automated Trader Magazine Issue 23 Q4 2011

In 1996, the quant trader Lars Kestner published a book introducing the K Ratio as a complement to the Sharpe Ratio. In 2003, he modified the K Ratio and published a revised version of his book (Lars Kestner, Quantitative Trading Strategies: Harnessing the Power of Quantitative Techniques to Create a Winning Trading Program, McGraw-Hill Traders Edge Series, 2003.) to explain why. Thomas Becker of Zephyr Associates thinks he was right first time.

Thomas Becker

Thomas Becker

Let's start by getting the names right. The term "K-Ratio" now refers, by default and by right, to Lars Kestner's own most recent version of his own ratio. To refer to Kestner's original ratio as the "Original K Ratio" gives us the "OK Ratio" contract

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