The Mathematics of Money Management: Risk Analysis Techniques for Traders [Hardcover]

Ralph Vince (Author)

Book Description

Series: Wiley Finance | Publication Date: April 17, 1992

Every futures, options, and stock markets trader operates under a set of highly suspect rules and assumptions. Are you risking your career on yours? Exceptionally clear and easy to use, The Mathematics of Money Management substitutes precise mathematical modeling for the subjective decision-making processes many traders and serious investors depend on. Step-by-step, it unveils powerful strategies for creating and using key money management formulas--based on the rules of probability and modern portfolio theory--that maximizes the potential gains for the level of risk you are assuming. With them, you'll determine the payoffs and consequences of any potential trading decision and obtain the highest potential growth for your specified level of risk. You'll quickly decide: What markets to trade in and at what quantities When to add or subtract funds from an account How to reinvest trading profits for maximum yield The Mathematics of Money Management provides the missing element in modern portfolio theory that weds optimal f to the optimal portfolio.

Editorial Reviews

From the Publisher

Permits traders in the futures, options and stock markets to create profitable trading formulas based on the rules of probability and modern portfolio theory. Shows how to develop and utilize key formulas which minimize losses, maximize profits and avoid excessive risk. Reintroduces the idea of ``optimal-f'' and its use in weighing and assigning values to the components of a trader's portfolio. Includes a computer program for immediate hands-on usage of techniques described.

From the Inside Flap

Until now, money management practices have been driven by a loose collection of highly subjective rules of thumb. By failing to accurately understand the outcomes of their potential actions, many traders and serious investors have been operating blind. The Mathematics of Money Management injects a new degree of precision into your trading strategies. Based on the rules of probability and modern portfolio theory, it shows you how to create and use these money management techniques in the futures, options, and stock markets. And you don’t need to be a PhD to exploit these strategies. Every equation and formula is easy to understand, and practical examples are provided for immediate hands-on use of the trading techniques discussed. By wedding the precepts and practices of modern portfolio theory to the concept of optimal f, The Mathematics of Money Management shows how to gauge the payoffs and consequences of every potential trading action, before you take it. Armed with this information, you’ll obtain the greatest potential investment growth for your specified level of risk, no matter what your chosen market. You’ll use these time-tested strategies to:

• Evaluate the risks and rewards of any potential trading decision
• Accurately weigh and assign values to the components of any portfolio
• Determine exactly how many contracts to trade for a specific market and/or system
• Maximize profits under reinvestment trading
• Prognosticate future system performance

Now you can bid good-bye to unreliable money management assumptions and faulty decision making. Here’s the money management tool for making mathematically correct trading decisions.

See all Editorial Reviews

Product Details

• Hardcover: 400 pages
• Publisher: Wiley; 1 edition (April 17, 1992)
• Language: English
• ISBN-10: 0471547387
• ISBN-13: 978-0471547389
• Product Dimensions: 9.4 x 6.2 x 1.2 inches
• Shipping Weight: 1.6 pounds (View shipping rates and policies)
• Average Customer Review: 3.5 out of 5 stars  See all reviews (11 customer reviews)
• Amazon Best Sellers Rank: #422,747 in Books (See Top 100 in Books)

More About the Author

Ralph Vince is by profession a computer programmer writing analytical programs for funds, large traders and professional gamblers. He is the author of five books on investing in his field of expertise, portfolio management and portfolio/trade optimization.

In his latest book, In The Leverage Space Trading Model, Vince offers a groundbreaking contribution to the literature that builds on a lifetime of expert analysis to deliver not only a superior new portfolio model, but takes the entire discipline of portfolio management to a new level.

To quote a few industry leaders:

"If Ralph Vince writes it, I read it...every word, every thought this guy has produced has led me to additional market profits. Money management is clearly the way to the kingdom of wealth in the investment world and Ralph gives you the keys in this book."

--Larry Williams, trader, fund manager, and author of Trade Stocks & Commodities with the Insiders: Secrets of the COT Report and Long-Term Secrets to Short-Term Trading

"I have known Mr. Vince for many years and he is quite simply one of the brightest minds in the industry. Do not miss this opportunity to share his insights into the investment process. John Bollinger, CFA, CMT, author of Bollinger on Bollinger Bands.

Mr. Vince's books are utilized as text books for university financial engineering programs and he is a lecturer at universities and financial seminars worldwide.

Mr. Vince is holding a one-and-a-half day workshop is designed for traders and investment managers of all asset classes in London on June 29th-30, 2010. The event will provide an in-depth, practical and quantitative understanding of the portfolio optimization and money management techniques developed by him, including his Optimal f and Leverage Portfolio Models. For more information visit http://rvincelondon201006.eventbrite.com/

Books by Ralph Vince:

The Leverage Space Trading Model: Reconciling Portfolio Management Strategies and Economic Theory (Wiley Trading 2009)

The Handbook of Portfolio Mathematics: Formulas for Optimal Allocation & Leverage (Wiley Trading 2007)

The New Money Management: A Framework for Asset Allocation (Wiley Trading 1995)

The Mathematics of Money Management: Risk Analysis Techniques for Traders (Wiley Trading 1992)

Portfolio Management Formulas : Mathematical Trading Methods for the Futures, Options, and Stock Markets (Wiley Trading 1990)

Customer Reviews

Most Helpful Customer Reviews

27 of 27 people found the following review helpful:

3.0 out of 5 stars Not for the risk averse, June 22, 2000

By A Customer

This review is from: The Mathematics of Money Management: Risk Analysis Techniques for Traders (Hardcover)

This book intelligent and is well written. However, it's discussion is contingent on accepting that maximizing the geometric growth rate (i.e. logarithmic utility) is the best objective function for a trader. This produces a very aggressive betting strategy. I would advise finding out a little more on "Kelly Betting" (try Blackjack resources) before going ahead with this.

39 of 44 people found the following review helpful:

2.0 out of 5 stars Some gems, but very poorly presented, August 6, 2000

By A Customer

This review is from: The Mathematics of Money Management: Risk Analysis Techniques for Traders (Hardcover)

I just read the "not for the innumerate" review on this book, and I agree. But I would like to clarify why the book disappoints. It's not that there are too many equations, but that there are too few equations and way too much jargon-laden hand waving. The hand waving, unfortunately, does not compensate for the clarity sacrificed by omitting the math. Vince's thesis that optimal f will maximize geometric returns is a valuable one, as is the concept of trading at dynamic fractional f to control risk. Unfortunately, he does not get specific enough to show us how to define and use optimal f in real life stock trading. I have an extensive math background, but I cannot get convincing quantitative results in Excel using his presentation, even after re-deriving for myself all the equations he deigns to show us. Perhaps if I had a futures trading background I would find his prose easier to follow, but I would have been much better off with the equations, in an appendix at least.

52 of 62 people found the following review helpful:

1.0 out of 5 stars Optimal f will make your trading go belly up, September 9, 1999

By A Customer

This review is from: The Mathematics of Money Management: Risk Analysis Techniques for Traders (Hardcover)

Optimal F is Ralph Vince's baby but it doesn't take into consideration that there is a trade out there that will take you out of the market. I trade professionally and would never trade anywhere near with the risk he talks about. The best traders I know are always prepared for the worst case secenario and just want to keep playing the game. Optimal F will take you out of the market very quickly.