Expected Value and Arbitrage Interview Questions
Expected value and arbitrage interview prep for distinguishing favorable average payoff from idealized no-loss profit.
Candidates preparing for trading theory interviews.
Positive EV can still lose
A positive expected value opportunity has favorable average payoff under a model, but it can still have losing outcomes.
Arbitrage is stronger
Idealized arbitrage removes downside under the model while preserving some chance of profit. That is a stronger condition than positive EV.
Concrete contrast
A coin game paying 3 on heads and losing 1 on tails has positive EV, but it can lose. A true toy arbitrage would not have the losing branch.
Risk profile
Expected value summarizes average payoff. Arbitrage claims require checking every modeled outcome and every cost.
Friction check
Fees, spreads, borrowing, execution, and constraints can turn an apparent arbitrage into a risky or negative opportunity in real settings.
Common mistakes
Candidates often use arbitrage as a synonym for good trade. In interviews, keep the no-loss structure explicit.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.