The year was 1990, and the flickering green phosphorus of trading monitors at the Chicago Board of Trade felt more like a battlefield than a marketplace. While most traders relied on "gut feel" and floor-room adrenaline, a quiet revolution was being printed in the pages of a new book: "Portfolio Management Formulas" Ralph Vince
Maximizing Geometric Mean via Terminal Wealth Relative (TWR). Dependent on the absolute Worst Historical Loss. Systemic Danger The year was 1990, and the flickering green
Optimal f is often seen as a specialized application of the Kelly Criterion, tailored specifically to the skewed returns and volatility of financial markets (unlike simple coin-flip gambling). Systemic Danger Optimal f is often seen as
TWR=∏i=1N(1+f×(−TradeiWorstLoss))TWR equals product from i equals 1 to cap N of open paren 1 plus f cross open paren the fraction with numerator negative cap T r a d e sub i and denominator cap W o r s t cap L o s s end-fraction close paren close paren The year was 1990
To implement Vince’s methods today:
with the Kelly Criterion or Fixed Percentage methods.