Good and bad properties of the Kelly Criterion

Ziemba, Bill

doi:10.1002/wilm.42820030205

Cited by 8 publications

(4 citation statements)

References 21 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Some recent support is found in McEnally (1986), Aurell, Baviera, Hammarlid, Serva, and Vulpiani (2000), Michaud (2003) and Platen (2005b). The view that investment of more than 100% in the GOP is irrational is common in the gambling literature -referred to as "overbetting" and is found for instance in Ziemba (2003Ziemba ( , 2004Ziemba ( , 2005. In a finance context the argument is voiced in Platen (2005c).…”

Section: Notesmentioning

confidence: 99%

“…For some interesting reading on the actual performance of growth optimal portfolios in various connections, see Thorp (1971Thorp ( , 1998, Grauer and Hakansson (1985), Hunt (2004Hunt ( , 2005 and Ziemba (2005). Edward Thorp constructed a hedge-fund, PNP, which successfully applied the GOP strategy to exploit prices in the market out of line with mathematical models, see in particular Poundstone (2005).…”

Section: Notesmentioning

confidence: 99%

See 1 more Smart Citation

On the History of the Growth-Optimal Portfolio

Christensen

2012

Advances in Computer Science and Engineering: Texts

View full text Add to dashboard Cite

The growth optimal portfolio (GOP) is a portfolio which has a maximal expected growth rate over any time horizon. As a consequence, this portfolio is sure to outperform any other significantly different strategy as the time horizon increases. This property in particular has fascinated many researchers in finance and mathematics created a huge and exciting literature on growth optimal investment. This paper attempts to provide a comprehensive survey of the literature and applications of the GOP. In particular, the heated debate of whether the GOP has a special place among portfolios in the asset allocation decision is reviewed as this still seem to be an area where some misconceptions exists. The survey also provides an extensive review of the recent use of the GOP as a pricing tool, in for instance the so-called "benchmark approach". This approach builds on the numéraire property of the GOP, that is, the fact that any other asset denominated in units of the GOP become a supermartingale

show abstract

Section: Notesmentioning

confidence: 99%

Section: Notesmentioning

confidence: 99%

On the History of the Growth-Optimal Portfolio

Christensen

2012

Advances in Computer Science and Engineering: Texts

View full text Add to dashboard Cite

show abstract

“…The universal portfolio strategy is based on the past returns and will perform asymptotically as well as the portfolio based on foreknowledge of the sequence of price. In recent decades, a good recent overviews of the field can be found in [8][9][10][11]14,15].…”

Section: Introductionmentioning

confidence: 99%

Dynamic optimal capital growth of diversified investment

Luo

Zhu

Tang

2014

Journal of Applied Statistics

View full text Add to dashboard Cite

We investigate the problem of dynamic optimal capital growth of diversified investment. A general framework that the trader maximize the expected log utility of long-term growth rate of initial wealth was developed. We show that the trader's fortune will exceed any fixed bound when the fraction is chosen less than critical value. But, if the fraction is larger than that value, ruin is almost sure. In order to maximize wealth, we should choose the optimal fraction at each trade. Empirical results with real financial data show the feasible allocation. The larger the fraction and hence the larger the chance of falling below the desired wealth growth path.

show abstract

“…In the second part Ziemba (2003a) considers the application of the Kelly criterion to lotteries. Ziemba (2003b) gives an easy-to-read review of the Kelly criterion. Anderson and Faff (2004) traded a simple and publicly available trading rule in five futures markets and reinvested any profits via the 'optimal f ' technique described by Vince (1990).…”

mentioning

confidence: 99%

Money management

2018

The Essential Guide to Business for Artists and Designers

View full text Add to dashboard Cite

For a speculative investor, there are two aspects to optimizing a trading strategy. The first and most important goal of a trader is to achieve a positive expected risk-adjusted return. Once this has been achieved, the trader needs to know what percentage of his capital to risk on each trade. Within the trading fraternity this task is often know as money management. The underlying principals of money management apply to both gambling and trading, and were originally developed for the former. The problem of how to maximize growth of wealth has been solved: maximize the expected value of the logarithm of wealth after each period. However, most investors are unwilling to endure the volatility of wealth that such a strategy entails, and as John Maynard Keynes reminded us, in the long run, we're all dead. For this reason, a compromise between the optimal growth strategy and the security of holding cash is often recommended. This note reviews the literature on money management.

show abstract

Good and bad properties of the Kelly Criterion

Cited by 8 publications

References 21 publications

On the History of the Growth-Optimal Portfolio

On the History of the Growth-Optimal Portfolio

Dynamic optimal capital growth of diversified investment

Money management

Contact Info

Product

Resources

About