Drawdown Interview Intuition
Drawdown interview intuition for path-dependent losses, peak-to-trough decline, risk constraints, and average-only mistakes.
Candidates discussing sequences of gains, losses, and risk constraints.
Drawdown is path-dependent
A drawdown measures decline from a prior peak. It depends on the sequence of outcomes, not only the final average.
Peak to trough
In a toy sequence, a fall from 100 to 80 after reaching 100 is a 20-point drawdown even if later outcomes recover.
Concrete example
Two payoff sequences can end at the same value but have different worst drawdowns along the way.
Relation to ruin
Drawdown is not identical to ruin, but large drawdowns can violate constraints or force stopping before positive expected value has time to show up.
Risk discussion
When a prompt includes risk limits, discuss path behavior in addition to expected value and variance.
Common mistakes
Candidates often compare only starting and ending values. Drawdown asks what happened in between.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.