Re: Question for Bruce Z
However the following formula is giving me some problems:
>>risk for GTAOT 5% bankroll of $9470 would be
r = exp(-2uB/sigma^2) = 26%
First of all what is exp?
It is the exponential function e^x where e is approximately 2.7183. exp is the inverse of the natural logarithm ln. If y = ln(x) then x = exp(y). You can find exp on some caclulators, or excel. Otherwsise you can just use 2.7183^x.
I don't quite understand the premise. It appears you have two risk of ruins here. Namely, 5% and 26%. If your willing to take a 5% chance of going broke then what does the 26% mean? Does it mean that you actually have a 26% chance of going broke?
GTAOT has a table labeled bankroll requirements for a 5% risk of ruin, and these are derived from his formula which you have quoted. These bankrolls will actually give a 26% risk of ruin as seen by the formulas I gave. That is, you will have a 26% chance of going broke with these bankrolls.
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