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The Probability of Ruin Matrix - How to calculate?

  1. May 28, 2009 #1
    Hello guys,

    In one of the books I`m studying related to trading and finance, I have come across a table called; The probability of Ruin Matrix.

    The author does not mention where he got it from. He might have made it himself, but I`m guessing he got it somewhere else. Here it is:

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

    Please see the table below:



    Code (Text):
                 % 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

    What this table tells us is that if we for example have 40% winners with a 2:1 P/R ratio, the probability of ruin is 14%.

    I guess this translates to a probability of 14% that we will experience 60 losers in a row.

    What I want to ask you guys is if you have any clue how to calculate this formula/table?

    I am making an excel sheet where I want to find the probability of ruin and its relation to account size, different P/R ratio, different W/R ratio, etc.

    That`s why I need the formula.

    Thank you all very much in advance!

    Best regards,

    Trader
     
  2. jcsd
  3. Jun 3, 2009 #2
    I thought you were the smart guys?:)
     
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