Implication of the Kelly criterion for multi-dimensional processes

DOI10.1142/S0219024910005693MaRDI QIDQ3560082zbMATH OpenFDO

Authors Yingdong Lv, Bernhard K. Meister

Publication date 19 May 2010

Published in International Journal of Theoretical and Applied Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/0903.2910

zbMATH Keywords

Brownian motioncomplete marketdiffusion processesKelly criterionoptimal investment strategyOrnstein-Uhlenbeckrisk-neutral measureself-financingutility functionvalue-at-risk

Mathematics Subject Classification ID

Applications of Brownian motions and diffusion theory (population genetics, absorption problems, etc.) (60J70) Probabilistic games; gambling (91A60) Applications of game theory (91A80) Portfolio theory (91G10)

Abstract: In this paper, we study the Kelly criterion in the continuous time framework building on the work of E.O. Thorp and others. The existence of an optimal strategy is proven in a general setting and the corresponding optimal wealth process is found. A simple formula is provided for calculating the optimal portfolio for a set of price processes satisfying some simple conditions. Properties of the optimal investment strategy for assets governed by multiple Ornstein-Uhlenbeck processes are studied. The paper ends with a short discussion of the implications of these ideas for financial markets.

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Cites work

• scientific article; zbMATH DE number 51724 (Why is no real title available?)
• Martingale methods in financial modelling.
• Risk-sensitive dynamic asset management
• Risk-sensitive portfolio optimization on infinite time horizon

Cited in

(8)

• Weighted entropy and optimal portfolios for risk-averse Kelly investments
• Game-theoretic optimal portfolios for jump diffusions
• Analysis of Kelly-optimal portfolios
• Generalized framework for applying the Kelly criterion to stock markets
• Kelly criterion: from a simple random walk to Lévy processes
• The Kelly growth optimal strategy with a stop-loss rule
• KELLY TRADING AND MARKET EQUILIBRIUM
• Kelly criterion revisited: Optimal bets

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