English

Single-Event Multinomial Full Kelly via Implicit State Positions

Optimization and Control 2026-03-17 v1 Portfolio Management

Abstract

For a single event with finitely many mutually exclusive outcomes, the full Kelly problem is to maximize expected log wealth over nonnegative stakes together with an optional cash position. The optimal formula is classical, but the support-selection step is often presented via Lagrange multipliers. This note gives a shorter state-price derivation. A cash fraction cc acts as an implicit position in every outcome: in terminal-wealth terms, it is equivalent to a baseline stake cqicq_i on outcome ii, where qiq_i is the state price. On any active support, explicit bets therefore only top up favorable outcomes from this baseline cqicq_i to the optimal total stake pip_i. This yields the formula xi=(picqi)+x_i = (p_i - c q_i)_+, the threshold rule pi/qi>cp_i/q_i > c, and, after sorting outcomes by pi/qip_i/q_i, a one-pass greedy algorithm for support selection. The result is standard in substance, but the implicit-position viewpoint gives a compact proof and a convenient way to remember the solution.

Keywords

Cite

@article{arxiv.2603.13581,
  title  = {Single-Event Multinomial Full Kelly via Implicit State Positions},
  author = {Christopher D. Long},
  journal= {arXiv preprint arXiv:2603.13581},
  year   = {2026}
}

Comments

7 pages, no figures

R2 v1 2026-07-01T11:19:27.416Z