Math Is Fun Forum

trohoang

Member

Registered: 2006-11-04

Posts: 1

Probability of Ruin Matrix

Hi there, I came across this Ruin Matrix in my Pschology of Trading. It was given to me as a table; however, I am interested in generating this table from scratch. Can you help me out?

Profit/Loss Ratio - P/R
Winning Percentage - % Win

Please see the table below

             % winner
P/R     30%     40%     50%    60%   
__________________________________
1:1       99       88         50       12
2:1       74       14          2        0
3:1       23       5            1        0
4:1       14       5            1        0

* Ruin is defined as a 50% drawdown from starting equity

To use the above table - say you win $1 for every $1 that you bet, then your P/R is 1:1. If you have 50% winner then you would have 50% chance of losing half of your money. However, if you have 60% winners then you would only have 12% of losing half of your money.

Say if you win $2 for every $1 that you bet, then your P/R is 2:1. If you have 50% winners then you would have only 2% of losing 50% of your money. However, if you have 60% winners then you would only have 0% chance of losing 50% of you money.

CamKC

Guest

Re: Probability of Ruin Matrix

Formula appears at http://www.trade2win.com/knowledge/articles/general_articles/risk-of-ruin/page1

All_Is_Number

Member

Registered: 2006-07-10

Posts: 258

Re: Probability of Ruin Matrix

Hi there, I came across this Ruin Matrix in my Pschology of Trading. It was given to me as a table; however, I am interested in generating this table from scratch. Can you help me out?

Profit/Loss Ratio - P/R
Winning Percentage - % Win

Please see the table below

             % winner
P/R     30%     40%     50%    60%   
__________________________________
1:1       99       88         50       12
2:1       74       14          2        0
3:1       23       5            1        0
4:1       14       5            1        0

* Ruin is defined as a 50% drawdown from starting equity

To use the above table - say you win $1 for every $1 that you bet, then your P/R is 1:1. If you have 50% winner then you would have 50% chance of losing half of your money. However, if you have 60% winners then you would only have 12% of losing half of your money.

Say if you win $2 for every $1 that you bet, then your P/R is 2:1. If you have 50% winners then you would have only 2% of losing 50% of your money. However, if you have 60% winners then you would only have 0% chance of losing 50% of you money.

I'm pretty sure the risk of ruin depends on the size of the bettor's bankroll.

You might be interested in reading about the Kelly criterion. I assume you're already familiar with the law of large numbers.

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You can shear a sheep many times but skin him only once.