The Leverage Space Trading Model: Reconciling Portfolio Management Strategies and Economic Theory
The Leverage Space Trading Model is a storybook, not a textbook. It is the story of ideas that go back roughly three centuries, and how they have, and continue, to change.
The Leverage Space Trading Model is the story of how resources should be combined, when confronted with one or more prospects of uncertain outcome, where the amount of such resources you will have for the next prospect of uncertain outcome is dependent on what occurs with this outcome. In other words, your resources are not replenished from outside. The Leverage Space Trading Model is a story that ultimately must answer the question, “What are you looking to accomplish at the end of this process, and how do you plan to implement it?” The answer to this question is vitally important because it dictates what kinds of actions we should take.
Given the complex and seemingly pathological character of human desires, we are presented with a fascinating puzzle within a story that has some interesting twists and turns, one of which is about to take place. There are some who might protest, “Some of this was published ear-lier!” They would certainly be correct. A lot of the material herein presents concepts that I have previously discussed.
However, they are necessary parts of the thread of this story and are provided not only for that rea-son but also in consideration of those readers who are not familiar with these concepts. Those who are familiar with the past concepts, peppered throughout Parts I and II of this story, can gloss over them as we build with them in Part III.
PART I :The Single Component Case: Optimal f
- The General History of Geometric Mean Maximization
- The Ineluctable Coordinates
- The Nature of the Curve
PART II :The Multiple Component Case: The Leverage Space Portfolio Model
- Multiple, Simultaneous f—‘‘Leverage Space’’
- Risk Metrics in Leverage Space and Drawdown
PART III :The Leverage Space Praxis
- A Framework to Satisfy Both Economic Theory and Portfolio Managers
- Maximizing the Probability of Profit