Portfolio Management Formulas : Mathematical Trading Methods for the Futures, Options, and Stock Markets [Hardcover]

Ralph Vince (Author)

Book Description

Series: Wiley Finance | Publication Date: October 19, 1990

Explores two neglected mathematical tools essential for competing successfully in today's frenzied commodities markets: quantity, which shows the proper amounts a trader should trade for a given market and system, and intercorrelation of returns (diversification), which shows not only which markets and systems to trade, but how to diversify with respect to trading the right quantities for each market. By using these lesser known tools in conjunction with the more popular trade/system selection tools, readers will see mathematically how success in the markets can be achieved, and how ``success'' without using all three is most likely incidental. In addition, non-stationary distribution of profits and losses and drawdowns are incorporated into the discussions to expose traders to the highs and lows of commodities markets and how best to leverage their assets.

Editorial Reviews

From the Publisher

Explores two neglected mathematical tools essential for competing successfully in today's frenzied commodities markets: quantity, which shows the proper amounts a trader should trade for a given market and system, and intercorrelation of returns (diversification), which shows not only which markets and systems to trade, but how to diversify with respect to trading the right quantities for each market. By using these lesser known tools in conjunction with the more popular trade/system selection tools, readers will see mathematically how success in the markets can be achieved, and how ``success'' without using all three is most likely incidental. In addition, non-stationary distribution of profits and losses and drawdowns are incorporated into the discussions to expose traders to the highs and lows of commodities markets and how best to leverage their assets.

Product Details

• Hardcover: 288 pages
• Publisher: Wiley; 1 edition (October 19, 1990)
• Language: English
• ISBN-10: 0471527564
• ISBN-13: 978-0471527565
• Product Dimensions: 9.3 x 6.3 x 0.8 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 3.8 out of 5 stars  See all reviews (6 customer reviews)
• Amazon Best Sellers Rank: #517,580 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 30 people found the following review helpful:

5.0 out of 5 stars Excellent coverage of a difficult topic, November 19, 2000

By 

John Fairbanks "John Fairbanks" (Houston, TX USA) - See all my reviews
(REAL NAME)   

Amazon Verified Purchase

This review is from: Portfolio Management Formulas : Mathematical Trading Methods for the Futures, Options, and Stock Markets (Hardcover)

... this book is incredible. I have a degree in mathematics and the principles expressed are extremely sound -- but far more important than the formulas are the first couple of chapters which cause you to view trading in a very different, and statistical, manner. Although the theories in this book can really only be applied to a trading system (which I haven't really used), after reading this book over several times I understand that there is a mathematical certainty that I will eventually lose my trading capital if I don't start approaching trading in a more systematic fashion. Anyway, I highly recommend it -- the sections on gambling theory alone are worth buying it.

30 of 36 people found the following review helpful:

2.0 out of 5 stars Beware applying optimal f to actual trading, March 1, 2000

By A Customer

This review is from: Portfolio Management Formulas : Mathematical Trading Methods for the Futures, Options, and Stock Markets (Hardcover)

The problem with optimal f is that the calculation is highly dependent on the largest loss on a trade (not drawdown) experienced in backtesting. If you use optimal f and the largest loss in actual trading is greater than the loss experienced in backtesting, you will go bankrupt. Vince deals with this problem in an offhanded manner by suggesting that the actual f you use should be "padded". OK, so in the end you don't even use the actual optimal f, you pad it. And how much do I pad it by? Vince is silent on this question. So the purpose of optimal f - to decide by formula how much capital to allocate to a trade - is totally negated by the fact that you must "pad" optimal f. And you must pad it by a qualitativly determined amount because, again, Vince gives no formula on how much to pad it by. Optimal f is totally useless for system traders or any other trader for that matter.

14 of 16 people found the following review helpful:

5.0 out of 5 stars Top notch, August 2, 2005

By 

Pushin' Fifty (St Louis, MO) - See all my reviews

This review is from: Portfolio Management Formulas : Mathematical Trading Methods for the Futures, Options, and Stock Markets (Hardcover)

I found this book to be amazingly good. Equities traders should be forwarned that "Optimal f" is employed here for commodities traders that can make use of big margin, but Vince may have addressed this issue in his more recent books.

It seems a quite a few people get angry or perplexed by optimal f, and the reasons boil down to a handful: Objection: Employing Optimal f will introduce you to levels of risk (large drawdowns) you find disagreeable. Response: That's OK, the mathematical reasoning is not invalidated by the extent to which one is risk averse. If you don't like using the largest historical loss to calculate Optimal f, you can use far larger datasets to produce more radical outliers, or even estimate catastrophic (percentage) losses.

Objection: The whole scheme seems a little too radical. Response: This is the very thing that makes the book so refreshing. Vince has done his own thinking, and he has done quite a bit of thinking very carefully. I wish I had him on my team.

Objection: The book contains too much math. Response: yes, this is mathematical stuff we are dealing with. You can trade more simply, but some of us want ideas for a better edge.

Objection: The book contains primitive math. Response: this is a product of the author's kindly tone. He is not attempting to astound you with his knowledge, but advancing new ideas in plain language, and try to keep the stragglers up with the main pack as they read. I found the tone conciliatory and courteous.

Throughout, Vince does his own thinking, and the burden of the book is not what you usually find. Most trading books I have read contain a little useful material, but seems to have been launched mainly to gain the author fame and income. This book is different. Vince has real ideas, thinks way beyond the "safe zone" and the book has completely reshaped my understanding of money management.