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Kaufmann Risk of Ruin formula

  1. Nov 8, 2011 #1
    Has anyone used this formula before?
    www.trade2win.com/traderpedia/Risk_of_ruin

    risk_of_ruin = ((1 - Edge)/(1 + Edge)) ^ Capital_Units
    Edge is the probability of a win.

    How is capital_units defined? Is it certain % of current balance or initial capital?

    If p=0.5, e.g,fair coin toss,
    how is the formula derived such that ROR always= 0.5/(1+0.5) or 1/3 of capital units?
    Is there a rationale behind this?

    Looking for a formula to work backwards for optimal bet size each round of bet , taking into account p,q,C,N where N = max consecutive/string of losses.
    N is an important variable because total ruin can still occur even when p>0.5.

    Related free ROR calculator
    http://www.automated-trading-system...n-and-drawdown-
     
    Last edited: Nov 8, 2011
  2. jcsd
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