How to calculate the risk of going broke?

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  • Kryptonite
    SBR High Roller
    • 09-25-10
    • 164

    #1
    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?
  • tukkk
    SBR Sharp
    • 10-04-10
    • 391

    #2
    around 60.5%
    heres the long and complicated version
    Last edited by tukkk; 08-22-11, 08:50 AM.
    Comment
    • Kryptonite
      SBR High Roller
      • 09-25-10
      • 164

      #3
      Originally posted by tukkk
      around 60.5%
      Thanks, can you explain how to calculate this,
      so I can see how the risk changes with different inputs.

      -edit: Ok I see, thanks for the link-
      Comment
      • tukkk
        SBR Sharp
        • 10-04-10
        • 391

        #4
        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
        Comment
        • Kryptonite
          SBR High Roller
          • 09-25-10
          • 164

          #5
          Originally posted by tukkk
          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), it´s impossible to go broke, isn´t 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 that´s 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, 10:13 AM.
          Comment
          • tukkk
            SBR Sharp
            • 10-04-10
            • 391

            #6
            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, 12:25 PM.
            Comment
            • Kryptonite
              SBR High Roller
              • 09-25-10
              • 164

              #7
              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.
              Attached Files
              Comment
              • tukkk
                SBR Sharp
                • 10-04-10
                • 391

                #8
                Originally posted by Kryptonite
                Good stuff, brings some interesting views.
                Yes, its interesting to know, that in order to succeed, you have to become a nit
                Comment
                • wantitall4moi
                  SBR MVP
                  • 04-17-10
                  • 3063

                  #9
                  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.
                  Comment
                  • HeeeHAWWWW
                    SBR Hall of Famer
                    • 06-13-08
                    • 5487

                    #10
                    Originally posted by wantitall4moi
                    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.

                    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, 08:52 AM.
                    Comment
                    • wantitall4moi
                      SBR MVP
                      • 04-17-10
                      • 3063

                      #11
                      Originally posted by HeeeHAWWWW
                      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
                      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.
                      Comment
                      • Patrick McIrish
                        SBR MVP
                        • 09-15-05
                        • 2864

                        #12
                        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.
                        Comment
                        • HeeeHAWWWW
                          SBR Hall of Famer
                          • 06-13-08
                          • 5487

                          #13
                          Originally posted by wantitall4moi
                          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.

                          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.
                          Comment
                          • tukkk
                            SBR Sharp
                            • 10-04-10
                            • 391

                            #14
                            The point is we need :
                            1) edge
                            2) not to exceed kelly
                            =profit

                            Bet amount determines, how smooth our profit distribution is.
                            Comment
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