Kaufmann Risk of Ruin formula

  1. Has anyone used this formula before?

    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
    Last edited: Nov 8, 2011
  2. jcsd
Know someone interested in this topic? Share this thead via email, Google+, Twitter, or Facebook

Have something to add?

Draft saved Draft deleted