The first practical trading guide to the revolutionary new science of decision-making According to the Wall Street Journal, "Game theory is hot." On Wall Street, many of today's most successful high-rollers now use it to help them make crucial buying and selling decisions. In the first trader's guide to game theory, economist Ron Shelton uses real-world case studies to demonstrate how game theory works in trading. He provides a model that can be used to predict the profitability of trades and shows traders how to use it to make market buy and sell decisions. RON SHELTON (Glendale, California) is an economist specializing in developing financial applications of game theory.
"Ronald Shelton has extended the field of excursion analysis with an innovative and provocative book that is sure to be widely - and controversial. By examining the actual distributions of price excursion, he shows a technique to estimate your odds going in on a new position, and within the context of game theory, how to evaluate those chances. All traders and analysts seeking objective bases for trading will want to read this book."
- John Sweeney, Technical Analysis of Stocks and Commodities magazine
"It's not often that a refreshingly new idea appears in the field of trading strategies or risk management, but Ronald Shelton has taken pieces from game theory and betting strategies and transformed them into a new, visual way to make trading decisions. He has been able to put a value on trading situations which can increase your ability to manage risk as well as clarify expectations - both essential ingredients for success."
- Perry Kaufman
1. What is Game Theory?
Basic Game Theory Terms and Ideas
The Decision-Making Problem
What is a Game?
A Simple Game
The Prisoner's Dilemna
Iterated Games
Zero Sum Game
Games against Nature
Pros and Cons of Game Theory
2. Basic Ideas About Financial Markets
3. The Interaction between Price Fluctuations and Risk
Acceptance Levels
Realistic Scenarios
Financial Markets as a Parlor Game
4. Constructing a Game Theoretic Model
Market-Strategy Notation
Speculator-Strategy Notation
Payoff Notation
Mathematical Representation of the Game Table
When to Accept Less Risk
When to Accept More Risk
Separation of Less Risk and More Risk
The Completed Model
5. Understanding the Model
6. Treasury Bond Futures
Appendix A: Mathematical Representation of the Model
Appendix B: Frequency Distribution for Expiring Month T-Bond Futures Prices
Appendix C: Relative Frequency Distribution for Expiring Month T-Bond Futures Prices
Appendix D: Quick Basic Program for Relative Frequencies
Appendix E: Relative Frequencies by Oscillator Conditions
About Ron Shelton
RONALD B. SHELTON is an economist specializing in developing financial applications of game theory. He is currently employed as a Managing Director in the National Accounts Department of Commercial Lines with the Travelers Indemnity Company.
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