Book Description
The Handbook of Portfolio Mathematics "For the serious investor, trader, or money manager, this book takes a rewarding look into modern portfolio theory. Vince introduces a leverage-space portfolio model, tweaks it for the drawdown probability, and delivers a superior model. He even provides equations to maximize returns for a chosen level of risk. So if you're serious about making money in today's markets, buy this book. Read it. Profit from it."
—Thomas N. Bulkowski, author,
Encyclopedia of Chart Patterns
"This is an important book. Though traders routinely speak of their 'edge' in the marketplace and ways of handling 'risk,' few can define and measure these accurately. In this book, Ralph Vince takes readers step by step through an understanding of the mathematical foundations of trading, significantly extending his earlier work and breaking important new ground. His lucid writing style and liberal use of practical examples make this book must reading."
—Brett N. Steenbarger, PhD, author,
The Psychology of Trading and Enhancing Trader Performance
"Ralph Vince is one of the world's foremost authorities on quantitative portfolio analysis. In this masterly contribution, Ralph builds on his early pioneering findings to address the real-world concerns of money managers in the trenches-how to systematically maximize gains in relation to risk."
—Nelson Freeburg, Editor,
Formula Research
"Gambling and investing may make strange bedfellows in the eyes of many, but not Ralph Vince, who once again demonstrates that an open mind is the investor's most valuable asset. What does bet sizing have to do with investing? The answer to that question and many more lie inside this iconoclastic work. Want to make the most of your investing skills Open this book."
—John Bollinger, CFA, CMT,
www.BollingerBands.com: Homepage
From the Inside Flap
Ralph Vince has made many contributions to the world of money management in trading over the course of his career, and his thoughts on this subject have captured the attention of both financial professionals and savvy individual traders alike. In The Handbook of Portfolio Mathematics, Vince outlines the essential elements found in his first three groundbreaking books—Portfolio Management Formulas, The Mathematics of Money Management, and The New Money Management—and then presents you with new insights that will allow you to implement his ideas in real-world trading situations. For instance, this book discusses drawdown beyond any discussion of drawdown to date. Vince's new portfolio model, the Leverage Space Model, uses drawdown as its risk metric, as opposed to conventional methods which use variance in returns. The result is a portfolio model far superior to any of its predecessors—some of which have been in use throughout the industry for over half a century.
While the first part of this book is purely conceptual, it is also exhaustive in that sense; not on portfolio construction in general, but rather, on portfolio construction in terms of optimal position sizes along the lines of an Optimal f approach. But The Handbook of Portfolio Mathematics goes far beyond theoretical principles; it quickly takes you from basic gambling theory and statistics, through the introduction of the Kelly criterion, Optimal f, and finally onto the leverage space portfolio model for multiple-simultaneous positions. The Handbook of Portfolio Mathematics also tackles the mathematical puzzle posed by attempting to employ such complex concepts and includes discussions of:
- How the Optimal f framework can be applied with regard to risk of financial ruin and its more familiar, and real-world-applicable cousin, risk of drawdown
- Reinvestment of returns and geometric growth issues
- Laws of growth, utility, and finite streams
- Classical portfolio construction
- The geometry of mean variance portfolios
- The common denominators—in terms of portfolio and systems management—that seem to be shared among the more successful commodities funds
The Handbook of Portfolio Mathematics is not entirely about trading the markets. It's about very basic, mathematical laws and how they affect us when we engage in a stream of risk-related outcomes that we don't have any control over. Written in an engaging and informative style, this book will guide you through a maze of complex theoretical issues, while arming you with a set of distinct formulas that can be used to achieve optimal fund allocation and leverage, as well as maximum portfolio returns.
About the Author
Ralph Vince got his start in the trading business as a margin clerk, and later worked as a consultant programmer to large futures traders and fund managers. Vince is also the author of Portfolio Management Formulas, The Mathematics of Money Management, and The New Money Management, also from Wiley. Numerous software companies have incorporated Vince's ideas into their products. Vince is an ultra-marathon runner and jiu jitsu black belt.
Preface. Introduction.
PART I. Theory.
Chapter 1. The Random Process and Gambling Theory.
Chapter 2. Probability Distributions.
Chapter 3. Revinvestment of Returns and Geometric Growth Concepts.
Chapter 4. Optimal ƒ.
Chapter 5. Characteristics of Optimal ƒ.
Chapter 6. Laws of Growth, Utility, and Finite Streams.
Chapter 7. Classical Porfolio Construction.
Chapter 8. The Geometry of Mean Variance Portfolios.
Chapter 9. The Leverage Space Model.
Chapter 10. The Geometry of Leverage Space Portfolios.
PART II. PRACTICE.
Chapter 11. What the Professionals Have Done.
Chapter 12. The Leverage Space Portfolio Model in the Real World.
Postscript.
Index.
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