Skill: Risk of Ruin & Bankroll Mathematics | Domain: trading/risk-and-portfolio | Category: risk | Level: advanced Tags: ruin, kelly, monte-carlo, bankroll, survival, sizing

Risk of Ruin & Bankroll Mathematics

1. Risk of Ruin Formula

Classical Formula

For a system with:

Win rate: W
Loss rate: L = 1 - W
Win/Loss ratio: R = avg_win / avg_loss
Risk per trade: f (fraction of bankroll)

Risk of Ruin = ((1 - Edge) / (1 + Edge))^(Capital_Units)