Diversification and limited information in the Kelly game
Portfolio Management
2008-12-10 v2 Data Analysis, Statistics and Probability
Physics and Society
Applications
Abstract
Financial markets, with their vast range of different investment opportunities, can be seen as a system of many different simultaneous games with diverse and often unknown levels of risk and reward. We introduce generalizations to the classic Kelly investment game [Kelly (1956)] that incorporates these features, and use them to investigate the influence of diversification and limited information on Kelly-optimal portfolios. In particular we present approximate formulas for optimizing diversified portfolios and exact results for optimal investment in unknown games where the only available information is past outcomes.
Keywords
Cite
@article{arxiv.0803.1364,
title = {Diversification and limited information in the Kelly game},
author = {Matus Medo and Yury M. Pis'mak and Yi-Cheng Zhang},
journal= {arXiv preprint arXiv:0803.1364},
year = {2008}
}
Comments
11 pages, 4 figures