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Old 08-31-2007, 01:26 AM
Paul2432 Paul2432 is offline
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Join Date: Jun 2003
Location: Bryn Mawr, PA USA
Posts: 1,458
Default Re: Risk of ruin question

Calculate a z-score that corresponds to losing 20B. This can be done as follows:

z = -(20+(WR)(n))/((S.D)(n^0.5)

RoR = NORMSDIST(z)

Where:

n=hours played
WR=hourly winrate
SD=hour SD
NOMRSDIST is an Excel function.

For example, if your win rate is 1 BB/hr and your SD is 10 BB/hr and you play 4 hours, then:

z = -(20+4)/(10x4^0.5)=-24/20=-1.25

RoR = Normsdist(-1.25)= 10.6%.

So, if you play 4 hours, you have about a 10% chance of being down 20BB.

I think there are some technical assumptions that I have glossed over that may weaken the above. Maybe phzon or brucez can chime in.

Paul
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