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 | | The Mathematics of Money Management: Risk Analysis Techniques for Traders by Ralph Vince ISBN-10: 9780471547389 ISBN-10: 0-471-54738-7 ISBN-13: 9780471547389 ISBN-13: 978-0-471-54738-9 Hardcover 1992-04-17 Wiley Find Lowest Price |
Editorials | ||
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. | ||
Reviews | ||
Most Comprehensive Analysis of Money Managament I Have Encountered Set aside all your pre-concieved notions of money management being about risk/reward. Whilst it is definately a good idea to keep r&r in mind, it's not very mathematically defined. Everything Ralph Vince presents in this book is applicable to trading at an optimal level (for maximum gains). He begins the book by reviewing the concept presented in his previous book on empiral optimal f. This serves as a primer to the coming chapter where the idea of parametric optimal f is detailed, allowing any trader (even without empiral data) to determine his/her optimal quantity to trade. Vince makes a clear distinction between the classical portfolio theory of defining optimal weights, with the notion in mind that optimal quantity and optimal weights are different for leveraged accounts. Following on from parametric optimal f, we are introduced to the 'optimal of the optimal' theory where he combines optimal f with modern portfolio theory (markowitz e-v theory) to obtain a construction for an unconstrained geomtrically optimal portfolio. Vince discusses the Black-Scholes Options Pricing Mode, and the Black Futures Option Pricing Model, among other things to incorporate into his framework for this 'optimal of the optimal' portfolio. This is definately not a book that can be read in a few days, unlike the majority of books I've encountered on trading. It would serve the reader best if he/she were to summarise the ideas Vince presents, along with following what he is doing by creating their own statistical representations (in Excel, Minitab,... though this did pose a problem because some ideas are very challenging to formulate into a statistical package). Finally I thought that I should point this out - I am quite confident in the fact that Vince makes a mistake with one of his partial derivatives in the introductory chapter on E-V Theory (when employing the Lagrange method). | ||
Another Schism The book is well written, reflecting level of education. The author is no dummy. However, the community is better served to realize that there is a divide between Modern Portfolio Theory, followers of quantitative methods ad infitum, and those followers of Practical Portfolio Theory, who are more or less followers of the Edwards & Maggee/Wyckoff schools of trading thought. My recommendation is to identify to which school of thought you belong and simply lay to rest the other quack books that come along. | ||
This Book is Must Read for those Mathematically Inclined ... I must have close to a 100 trading books and this one is a gem. As Elder points out in one of his books there are three legs that support successful trading: Trading Strategy, Psychology and Money Management. Optimal F which is well explained in this book is the best measure of your Risk/Reward. Knowing the optimal f of a trade allows you to compare apples and oranges. I can tell if trading a stock option with a potential return of 1000% is better than trading a stock with a potential return of 20%. | ||
Some gems, but very poorly presented 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. | ||
Not for the risk averse 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. | ||