Books about trade management & game theory???

If we are going with game theory as a general framework for disciplined and rigorious thinking process, then I'll agree with you completely. A lot of high order market mechanics can be simplified into a set of "dominant" players with their own motivations and payoffs. For example, a simple game theory argument can be made for why certain things like super senior CLOs can trade at values far off from their actual risk adjusted cashflow (that is, arguments that don't appeal to simple name calling like "Greed" or "corruption").

Where I disagree, I think, is that there's some game theoretical formula for trade management. In my experience, applied real options are far more fruitful for dynamic trade position sizing.

 

Anyone read this 'Gaming the Market: Applying Game Theory to Create Winning Trading Strategies'?
http://www.amazon.com/Gaming-Market-Applying-Winning-Strategies/dp/0471168130

 

I have a good explanation in my October and November 2001 articles on Futures Magazine. I think they are on the web at ALLBusiness.com.

 

Thanks to you all for your replies.

Please explain, sjfan.

Thanks, but I could not find the articles. Please give the links. Thanks!

 

http://www.allbusiness.com/3470945-1.html?query=Murray+Ruggiero+Game+Theory

Here a link to search, just click on the blue link to go to the articles.

 

I really enjoyed Prisoner's Dilemma by William Poundstone. It might be more basic than what you're looking for, and you likely won't be able to apply it in any direct fashion. But I thought it was a fun way to spend a Sunday afternoon.

"From Library Journal: This very readable book is partly a biography of John von Neumann, partly a nontechnical history of the branch of mathematics known as game theory, and partly a description of some of the paradoxical findings that arise from that theory. Von Neumann was a brilliant mathematician who was the major figure in the Manhattan Project and later an active public figure. Thus, those portions of the book that deal with his life are interesting and informative. Those sections that deal with game theory use no mathematics beyond simple arithmetic and are thus fascinating, thought provoking, and easily accessible to the layperson. For all biography and science collections. - Harold D. Shane, Baruch Coll., CUNY"

http://www.amazon.com/Prisoners-Dilemma-William-Poundstone/dp/038541580X

 

Thanks for the link, Murray. It was so long list. Shall take time to read them all. But, found some real interesting.

 

Explain what?

 

sjfan, I wanted you to explain the last two lines of your post as follows:



“Where I disagree, I think, is that there's some game theoretical formula for trade management. In my experience, applied real options are far more fruitful for dynamic trade position sizing.”



Please explain, sjfan.

 

Think about it.... a stop-loss when your $50 stock drop more than $1 is the same as delta replicating a $49-strike put where you maintain an initial delta of 0 and hedge to 1 when the $49 line is breached. So stop-loss is basically a dynamic hedging strategy that's not very dynamic. This, of course, leaves further room for thinking about more complicated strategies and techniques.