Related papers: Generalizing the Kelly strategy
We pursue an inverse approach to utility theory and consumption & investment problems. Instead of specifying an agent's utility function and deriving her actions, we assume we observe her actions (i.e. her consumption and investment…
Kelly's criterion is a betting strategy that maximizes the long term growth rate, but which is known to be risky. Here, we find optimal betting strategies that gives the highest capital growth rate while keeping a certain low value of risky…
In 1956 John Kelly wrote a paper at Bell Labs describing the relationship between gambling and Information Theory. What came to be known as the Kelly Criterion is both an objective and a closed-form solution to sizing wagers when odds and…
We consider the problem of utility maximization for small traders on incomplete financial markets. As opposed to most of the papers dealing with this subject, the investors' trading strategies we allow underly constraints described by…
We consider a single-period portfolio selection problem for an investor, maximizing the expected ratio of the portfolio utility and the utility of a best asset taken in hindsight. The decision rules are based on the history of stock returns…
We review some fundamental concepts of investment from a mathematical perspective, concentrating specifically on fractional-Kelly portfolios, which allocate a fraction of wealth to a growth-optimal portfolio while the remainder collects (or…
In this paper, motivated by the celebrated work of Kelly, we consider the problem of portfolio weight selection to maximize expected logarithmic growth. Going beyond existing literature, our focal point here is the rebalancing frequency…
This paper examines an optimal investment problem in a continuous-time (essentially) complete financial market with a finite horizon. We deal with an investor who behaves consistently with principles of Cumulative Prospect Theory, and whose…
We study the risk criterion for investments based on the drawdown from the maximal value of the capital in the past. Depending on investor's risk attitude, thus his risk exposure, we find that the distribution of these drawdowns follows a…
This paper presents a novel approach for optimizing betting strategies in sports gambling by integrating Von Neumann-Morgenstern Expected Utility Theory, deep learning techniques, and advanced formulations of the Kelly Criterion. By…
We study an optimal consumption and investment problem in a possibly incomplete market with general, not necessarily convex, stochastic constraints. We give explicit solutions for investors with exponential, logarithmic and power utility.…
This paper studies a two-person trading game in continuous time that generalizes Garivaltis (2018) to allow for stock prices that both jump and diffuse. Analogous to Bell and Cover (1988) in discrete time, the players start by choosing fair…
We investigate the use of Kelly's strategy in the construction of an optimal portfolio of assets. For lognormally distributed asset returns, we derive approximate analytical results for the optimal investment fractions in various settings.…
For sequential betting games, Kelly's theory, aimed at maximization of the logarithmic growth of one's account value, involves optimization of the so-called betting fraction $K$. In this Letter, we extend the classical formulation to allow…
We consider a sequence of repeated interactions between an agent and an environment. Uncertainty about the environment is captured by a probability distribution over a space of hypotheses, which includes all computable functions. Given a…
When testing a statistical hypothesis, is it legitimate to deliberate on the basis of initial data about whether and how to collect further data? Game-theoretic probability's fundamental principle for testing by betting says yes, provided…
Gambles are random variables that model possible changes in monetary wealth. Classic decision theory transforms money into utility through a utility function and defines the value of a gamble as the expectation value of utility changes.…
We formulate an adaptive version of Kelly's horse model in which the gambler learns from past race results using Bayesian inference. A known asymptotic scaling for the difference between the growth rate of the gambler and the optimal growth…
Consider a gambling game in which we are allowed to repeatedly bet a portion of our bankroll at favorable odds. We investigate the question of how to minimize the expected number of rounds needed to increase our bankroll to a given target…
Random utility theory models an agent's preferences on alternatives by drawing a real-valued score on each alternative (typically independently) from a parameterized distribution, and then ranking the alternatives according to scores. A…