The Handbook of Portfolio Mathematics

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.