Given return of a portfolio or a single asset modeled as a continuous, but not necessarily gaussian, probability distribution, what's the Kelly criterion equation?

I've heard that it's simply the the ratio of the sharpe ratio to the standard deviation. Is it true?

  • 1
    $\begingroup$ This was already discussed here quant.stackexchange.com/a/7199 $\endgroup$
    – RRG
    Apr 3, 2017 at 9:08
  • $\begingroup$ This is discussed (among other places) in the book Investment Science by Luenberger $\endgroup$
    – nbbo2
    Apr 3, 2017 at 13:55
  • $\begingroup$ It is only true if there is a second moment in the distribution. Given the data and papers on the topic, that claim would be very dubious. $\endgroup$ Apr 4, 2017 at 4:39
  • $\begingroup$ The Sharpe Ratio is a rough but good approximation. In regard to approximating optimal bet size, the world of professional gambling is ahead of canonical portfolio managers. For a good essay on how this works, I recommend: wizardofodds.com/gambling/kelly-criterion. $\endgroup$ Apr 19, 2017 at 23:42


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Browse other questions tagged or ask your own question.