Which division of mathematics does Money Management belong to? Gambling Theory, Stochastic Integration, or any others?
Thanks.
What's the mathematics foundation of Money Management?
-
- Roundtable Knight
- Posts: 207
- Joined: Mon Feb 23, 2004 9:13 am
- Location: Vermont, USA
- Contact:
Position-sizing and probability theory
If you read Fortune's Formula by William Poundstone, you would say it is in the realm of 'Information Theory' (which is a great book by the way - on my recommended trading top list), but I believe for practical purposes it is more related to probability theory than anything else, since you are trying to determine the amount to risk that gives you the 'best' risk/reward ratio for your objectives in the context of a estimated distribution of possible trade outcomes.
Hope this helps
Paul
Hope this helps
Paul