The Mathematics of Money Management: Risk Analysis Techniques for Traders (Hardcover)

~ (Author) "Whenever you enter a trade, you have made two decisions: Not only have you decided whether to enter long or short, you have also decided..." (more)
Key Phrases: arithmetic mathematical expectation, mandated exit date, arithmetic average trade, Portfolio Management Formulas, Answer Explanation, Binomial Model (more...)

Editorial Reviews

Product Description

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.

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.

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 x 6.1 x 1.2 inches
• Shipping Weight: 1.6 pounds (View shipping rates and policies)
• Average Customer Review: 3.7 out of 5 stars  See all reviews (9 customer reviews)
• Amazon.com Sales Rank: #682,596 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

21 of 21 people found the following review helpful:

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

By A Customer

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.

32 of 36 people found the following review helpful:

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

By A Customer

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.

45 of 53 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

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.