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Others may have different views, but I've tried applying Kelly formula/fractional Kelly strategies to capital allocation, and find it rather unpractical and risky. I would honestly suggest a three-tier optimization framework that I am myself adopting: Assuming you have $M$ number of models covering multiple instruments and strategies. Your goal is to pick ...


Bayesian Odds Ratios can be used to compare models and allocate wealth to various models based on the relative probability that each particular model is "best." You could begin to look into it more on the wiki site.


Have a look at my paper http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2259133 I checked Kelly formula and found the answer from it is exactly as Markowitz's theory. >Thus, most issues on mean-variance theory (e.g. noise of estimation for mean and >variance) applies here. Kelly is not exactly as Markowitz's theory but they are indeed closely ...


Initial capital is not a real constraint in theoretical analysis, but might be a practical constraint in reality. The objective function you gave defines the efficient frontier corresponding to a given risk tolerance $q \in [0, \infty]$: $$\min\{w^T\Sigma w-qR^Tw\}$$ This criterion is among the other popular optimization criteria, such as minimum variance, ...


See for some answers on this: http://www.stoxx.com/download/articles/article_minvar_201408.pdf

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