The kelly-criterion is a risk management strategy (or wagering system) providing an optimal risk apportionment system that relies on having 2 calculated probabilities.
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votes
4answers
2k views
Volatility pumping in practice
The fascinating thing about volatility pumping (or optimal growth portfolio, see e.g. here) is that here volatility is not the same as risk, rather it represents opportunity. Additionally it is a ...
7
votes
2answers
547 views
Kelly criterion and Sharpe ratio
Whats the relationship between the Kelly criterion and the Sharpe ratio?
$$
f=\frac{p(b+1)-1}{b}
$$
where $f$ is a percentage of how much capital to place on a bet, $p$ is the probability of ...
5
votes
2answers
667 views
Optimality of Kelly criterion in non-normal environment
It is a not so well known fact that the Kelly criterion is only optimal in a nice and well-behaved Merton-world. It is far from optimal when things are getting non-(log)normal (i.e. more realistic!).
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1
vote
2answers
177 views
Absolute Dollar Form Of Kelly Criterion
Is there a absolute dollar form of the Kelly equation $f=\frac{m}{s^2}$? (i.e. one that does not use percent returns).
8
votes
1answer
799 views
How to apply the Kelly criterion when expected return may be negative?
My concern is how to handle a negative value for the Kelly formula. Even when you have a system that has positive expectancy, you can (and usually will) sustain a number of losses, sometimes ...
9
votes
3answers
824 views
How to optimally allocate capital among trading strategies?
I'm trying to find an optimal way to allocate capital among trading strategies.
"Quantitative Trading" by Ernie Chan claims on page 97 that the optimal fraction of capital to allocate to a given ...
