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How to calculate the risk of going broke?
Anyone knows how to calculate this:
Bankroll: 100$
Winpercentage: 55%
Odds: -110 (1.909)
Flat betting 20$ each bet (you risk 20$ to win 18,18$)
If bankroll goes below 20$, you risk your entire bankroll on the next bet.
What is the risk that you will go broke at some point in the future?
around 60.5%
heres the long and complicated version
http://www.automated-trading-system....culation-tool/
Last edited by tukkk; 08-22-11 at 08:50 AM.
Thanks, can you explain how to calculate this,Originally Posted by tukkk
so I can see how the risk changes with different inputs.
-edit: Ok I see, thanks for the link-
this is simple, input your ev as winrate , standard deviation is around 1 for all coinflip type sportsbets , bankroll is 5 and get the 60,68% ROR
http://www.poker-tools-online.com/riskofruin.html
Not sure how to get 60,5%...
with these inputs:
prob.win 0,55
win/loss ratio 10/11
risk amt 20%
number of periods 1000
risk of ruin
loss level 100%
I get 32,99% Risk of Ruin...
And if the risk amt is 20% of your bankroll (instead of a fixed $ amount), itīs impossible to go broke, isnīt it
-EDIT-
If I change win/loss ratio from 10/11 to 0.90 I get 60,48% risk of ruin. (the system saw 10/11 as 10), so thatīs correct.
Another strange thing: If you increase the win/loss ratio to big amounts, the risk of ruin increases
(for example win/loss ratio 100, prob win 0,55, and risk of ruin is 88% !?!?)
Last edited by Kryptonite; 08-22-11 at 10:13 AM.
Its better to use excel.
risk of ruin = e^(-B/b*2*edge/stdev^2)
B-Bankroll, b-bet
e is a constant, e=2,718281828
your sample :
r=2,718281828^(-100/20*2*0,04995/1^2)=0,606834
Last edited by tukkk; 08-22-11 at 12:25 PM.
Good stuff, brings some interesting views.
You can go broke pretty easily, especially if your edge is small.
For example: Bankroll 100, bet 5, edge 0,01, risk of ruin 67%!
See attachement for excel-sheet.
Yes, its interesting to know, that in order to succeed, you have to become a nit
all these math formulas prove you cant win betting one way even with a small edge. or the risk of going broke is about 3-2 against you. Yet people constantly use math to beat math.
boggles the mind.
No. He's betting more than 3x full Kelly. Hardly surprising the bankruptcy risk is gigantic.
At 1/3 Kelly instead ($2 stakes), risk of ruin falls 100x
Last edited by HeeeHAWWWW; 08-23-11 at 08:52 AM.
still using one formula to beat another. But yeah betting 20% of your bank roll with a 2.5% edge isnt smart.
But I think risk of ruin would actually increase over time, amount of bets. the 60.2% assumes the 'perfect' scenario. if he gets past that point it will actually increase.
But not 100% sure, I am sure there is something somewhere that says it would.
For us simpletons it's real easy, if you emerge yourself in -EV pursuits you will go broke. Variables involved are how often you wager, how much you wager, how big the starting roll is and so on. Not a matter of if, you live long enough you'll go broke. The point? Stay away from things you can't beat.
At anything over 2x Kelly it basically doesn't matter what edge you have, the overbetting will kill your profitability:
That's why 1/3 Kelly is nice imo, you're not likely to overbet unless your methodology/research is really bad.
The point is we need :
1) edge
2) not to exceed kelly
=profit
Bet amount determines, how smooth our profit distribution is.
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