From: John Conover <john@email.johncon.com>
Subject: William Poundstone's new book
Date: Sat, 26 Nov 2005 23:15:06 -0800
Rich Eiferman, (he's on the NtropiX mailing list,) told me about
William Poundstone's new book, "Fortune's Formula: The Untold Story of
the Scientific Betting System that Beat the Casinos and Wall Street,"
Hill and Wang, New York, New York, 2005, ISBN 0-8090-4637-7, (its
available on Amazon, for under $20 US.)
The book is about Claude Shannon's information theory, as applied to
gambling problems, (blackjack, roulette, pari-mutual betting, and the
stock market are discussed,) using John Kelly's interpretation of
information rate, and offers an excellent, (and well written,)
historical perspective-the book is not mathematical.
The book is highly recommended.
John
BTW, the -d1, (the default,) option to tsinvest is based on strict
Kelly criteria, (from the vernacular in the book,) the -d2 is based on
Black-Scholes assumptions, and the -d3, assumes average returns,
(again, from the vernacular in the book.) Note that they are all the
same-the -d2, and, -d3, presume market efficiency, meaning that avg =
rms^2, (i.e., measuring one-usually rms-implies knowing the other.)
Strict Kelly criteria, the -d1 option, does not make this assumption,
and is more accurate-the last chapters of the book delve into the
issue, siting the failure of LTCM.
--
John Conover, john@email.johncon.com, http://www.johncon.com/