The Leverage Space Trading Model – Reconciling Portfolio Management Strategies and Economic Theory Reconciling Portfolio Management Strategies and Economic Theory

An innovative approach to trading by an expert in the field

In The Leverage Space Trading Model, quantitative portfolio analysis expert Ralph Vince takes the Leverage Space Model he presented in The Handbook of Portfolio Mathematics and brings it into entirely new territory. As Vince shows here, even if a trader doesn't use margin, he or she is still using leverage. Leverage refers to the schedule upon which an asset position is increased or decreased over time as an equity account fluctuates. Traditional models do not reflect real-world actualities of cash versus the position and the schedule of adding or lightening that position. In this book, Vince shows that geometric returns (the "space") matter more than arithmetic returns and presents a paradigm that seeks to maximize the probability of being profitable as opposed to maximizing profits. Because this paradigm seems to minimize losses, which we are hardwired to do, it is ultimately easier to implement and stick to.

Ralph Vince (Cleveland, OH) is a computer programmer and author of The Handbook of Portfolio Mathematics (978-0-471-75768-9), Portfolio Management Formulas (978-0-471-52756-5), The Mathematics of Money Management (978-0-471-54738-9), and The New Money Management (978-0-471-04307-2), all from Wiley.

In The Leverage Space Trading Model, Optimal f and quantitative portfolio analysis expert Ralph Vince takes the Leverage Space Model he presented in The Handbook of Portfolio Mathematics and pioneers into a entirely new territory. Market analysis and technical indicators are important to determine market direction but Vince claims that in and of themselves they are not enough and won't keep traders from inevitable failure. As Vince shows, even in a game where the trader wins in all but one trade out of a million, if the trader keeps doubling the bets, the trader will eventually go broke. Even if the trader doesn't use margin, he or she is still using leverage. Leverage refers to the schedule upon which an asset position is increased or decreased over time as the equity account fluctuates. Traditional models do not reflect real world actualities of cash vs. the position and the schedule of adding or lightening that position. Vince shows that geometric returns (the "space") matter more than arithmetic returns and presents a paradigm that seeks to maximize the probability of being profitable as opposed to maximizing profits. Psychologically, because this paradigm seems to minimize losses, which Daniel Kahneman showed we are hardwired to do, it is ultimately easier to implement -- and stick to.

Preface. Introduction. PART I The Single Component Case: Optimal f. CHAPTER 1 The General History of Geometric Mean Maximization. CHAPTER 2 The Ineluctable Coordinates. CHAPTER 3 The Nature of the Curve. PART II The Multiple Component Case: The Leverage Space Portfolio Model. CHAPTER 4 Multiple, Simultaneous f"Leverage Space". CHAPTER 5 Risk Metrics in Leverage Space and Drawdown. PART III The Leverage Space Praxis. CHAPTER 6 A Framework to Satisfy Both Economic Theory and Portfolio Managers. CHAPTER 7 Maximizing the Probability of Profit. Bibliography. Index.