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Is there a absolute dollar form of the Kelly equation $f=\frac{m}{s^2}$? (i.e. one that does not use percent returns).

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2 Answers

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Well, the first formula on the wiki page gives you a straight forward answer in absolute terms (you do know your bankroll so its pretty much absolute):

http://en.wikipedia.org/wiki/Kelly_criterion

Simple as that, sometimes it does not pay but only causes headaches to overcomplicate things :-)

Happy Thanksgiving!!!

Update as requested by OP:

http://www.math.washington.edu/~morrow/336_10/papers/jane.pdf

and here an application using R

http://braverock.com/brian/R/PerformanceAnalytics/html/KellyRatio.html

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That formula seems to be a specific case for binary outcomes, quote: "For simple bets with two outcomes, one involving losing the entire amount bet, and the other involving winning the bet amount multiplied by the pay-off odds". I was more specifically wondering if there was an absolute dollar form in the continuous case. – Craig Nov 23 '12 at 19:23
Added more references for the continuous case and specifically applied to financial assets. – Matt Wolf Nov 25 '12 at 10:05
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See Ralph Vince's excellentbook: Handbook of Portfolio Mathematics where he goes through explicit, worked examples of using an appropriate modified-Kelly system in dollar / contract terms (Optimal F). He even gives Excel examples for the programmatically uninitiated.

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Cheers! That book looks like it's worth a read. – Craig Dec 1 '12 at 17:11

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