Related papers: On Kelly Betting: Some Limitations
This article examines arbitrage investment in a mispriced asset when the mispricing follows the Ornstein-Uhlenbeck process and a credit-constrained investor maximizes a generalization of the Kelly criterion. The optimal differentiable and…
We construct a diffusion approximation of a repeated game in which agents make bets on outcomes of i.i.d. random vectors and their strategies are close to an asymptotically optimal strategy. This model can be interpreted as trading in an…
Wealth inequality is an important matter for economic theory and policy. Ongoing debates have been discussing recent rise in wealth inequality in connection with recent development of active financial markets around the world. Existing…
Efficiently allocating treatments with a budget constraint constitutes an important challenge across various domains. In marketing, for example, the use of promotions to target potential customers and boost conversions is limited by the…
In evaluating prediction markets (and other crowd-prediction mechanisms), investigators have repeatedly observed a so-called "wisdom of crowds" effect, which roughly says that the average of participants performs much better than the…
This paper studies a sequential decision problem where payoff distributions are known and where the riskiness of payoffs matters. Equivalently, it studies sequential choice from a repeated set of independent lotteries. The decision-maker is…
In this paper we present an asset allocation strategy based on the maximization of the Sortino ratio. Unlike the Sharpe ratio, the Sortino ratio penalizes negative return variances only. The resulting allocation is valid for any time…
This paper studies a portfolio allocation problem, where the goal is to prescribe the wealth distribution at the final time. We study this problem with the tools of optimal mass transport. We provide a dual formulation which we solve by a…
In this paper we consider multiple constrained resource allocation problems, where the constraints can be specified by formulating activity dependency restrictions or by using game-theoretic models. All the problems are focused on generic…
A central problem in business concerns the optimal allocation of limited resources to a set of available tasks, where the payoff of these tasks is inherently uncertain. In credit card fraud detection, for instance, a bank can only assign a…
Testing by betting has been a cornerstone of the game-theoretic statistics literature. One bets against the null hypothesis, and the accumulated wealth $W_t$ quantifies the evidence against the null hypothesis after $t$ rounds, and the null…
Goal-based investing is concerned with reaching a monetary investment goal by a given finite deadline, which differs from mean-variance optimization in modern portfolio theory. In this article, we expand the close connection between…
In the context of a large class of stochastic processes used to describe the dynamics of wealth growth, we prove a set of inequalities establishing necessary and sufficient conditions in order to avoid infinite wealth concentration. These…
We prove that Pareto theory of circulation of elites results from our wealth evolution model, Kelly criterion for optimal betting and Keynes' observation of "animal spirits" that drive the economy and cause that human financial decisions…
An important but understudied question in economics is how people choose when facing uncertainty in the timing of events. Here we study preferences over time lotteries, in which the payment amount is certain but the payment time is…
I derive practical formulas for optimal arrangements between sophisticated stock market investors (namely, continuous-time Kelly gamblers or, more generally, CRRA investors) and the brokers who lend them cash for leveraged bets on a high…
The allocation of resources plays an important role in the completion of system objectives and tasks, especially in the presence of strategic adversaries. Optimal allocation strategies are becoming increasingly more complex, given that…
This paper investigates risk measures derived from the expected maximum deficit in a continuous-time framework and develops optimal reserve allocation strategies across multiple lines of business. We formalize the expected maximum deficit…
We consider the portfolio choice problem for a long-run investor in a general continuous semimartingale model. We suggest to use path-wise growth optimality as the decision criterion and encode preferences through restrictions on the class…
This paper builds a core-satellite model of semi-static Kelly betting and log-optimal investment. We study the problem of a saver whose core portfolio consists in unlevered (1x) retirement plans with no access to margin debt. However, the…