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Bounds on Gambler's Ruin Probabilities in Terms of Moments

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  • S. N. Ethier

    (University of Utah)

  • Davar Khoshnevisan

    (University of Utah)

Abstract

Consider a wager that is more complicated than simply winning or losing the amount of the bet. For example, a pass line bet with double odds is such a wager, as is a bet on video poker using a specified drawing strategy. We are concerned with the probability that, in an independent sequence of identical wagers of this type, the gambler loses L or more betting units (i.e., the gambler is “ruined”) before he wins W or more betting units. Using an idea of Markov, Feller established upper and lower bounds on the probability of ruin, bounds that are often very close to each other. However, his formulation depends on finding a positive nontrivial root of the equation φ (ρ )=1, where φ is the probability generating function for the wager in question. Here we give simpler bounds, which rely on the first few moments of the specified wager, thereby making such gambler's ruin probabilities more easily computable.

Suggested Citation

  • S. N. Ethier & Davar Khoshnevisan, 2002. "Bounds on Gambler's Ruin Probabilities in Terms of Moments," Methodology and Computing in Applied Probability, Springer, vol. 4(1), pages 55-68, March.
    • Handle: RePEc:spr:metcap:v:4:y:2002:i:1:d:10.1023_a:1015705430513
    DOI: 10.1023/A:1015705430513
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    References listed on IDEAS

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    1. Kozek, Andrzej S., 1995. "A rule of thumb (not only) for gamblers," Stochastic Processes and their Applications, Elsevier, vol. 55(1), pages 169-181, January.
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    Cited by:

    1. Werner Hürlimann, 2005. "Improved Analytical Bounds for Gambler’s Ruin Probabilities," Methodology and Computing in Applied Probability, Springer, vol. 7(1), pages 79-95, March.

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    2. Werner Hürlimann, 2005. "Improved Analytical Bounds for Gambler’s Ruin Probabilities," Methodology and Computing in Applied Probability, Springer, vol. 7(1), pages 79-95, March.

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