The Mathematics of Money Management: Risk Analysis Techniques for Traders
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.
I wrote in the first sentence of the Preface of Portfolio Management Formulas, the forerunner to this book, that it was a book about mathematical tools. I have written this as a book to be utilized by traders in the real-world marketplace. I am not an academic. My interest is in realworld utility before academic pureness. Furthermore, I have tried to supply the reader with more basic information than the text requires in hopes that the reader will pursue concepts farther than I have here.
This is a book about music theory, not a how-to book about playing an instrument. Likewise, this is not a book about beating the markets, and you won’t find a single price chart in this book. Rather it is a book about mathematical concepts, taking that important step from theory to application, that you can employ. It will not bestow on you the ability to tolerate the emotional pain that trading inevitably has in store for you, win or lose.
This book will teach you about risk management. Very few traders have an inkling as to what constitutes risk management. It is not simply a matter of eliminating risk altogether. To do so is to eliminate return altogether. It isn’t simply a matter of maximizing potential reward to potential risk either. Rather, risk management is about decisionmaking strategies that seek to maximize the ratio of potential reward to potential risk within a given acceptable level of risk.
- The Empirical Techniques
- Characteristics of Fixed Fractional Trading and Salutary Techniques
- Parametric Optimal f on the Normal Distribution
- Parametric Techniques on Other Distributions
- Introduction to Multiple Simultaneous Positions under the Parametric Approach
- Correlative Relationships and the Derivation of the Efficient Frontier
- The Geometry of Portfolios
- Risk Management