Generalized framework for applying the Kelly criterion to stock markets

DOI10.1142/S0219024918500334zbMATH Open1396.91677arXiv1806.05293WikidataQ129677775 ScholiaQ129677775MaRDI QIDQ4584701FDOQ4584701

Authors: Tim Byrnes, Tristan Barnett 

Publication date: 4 September 2018

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

Abstract: We develop a general framework for applying the Kelly criterion to stock markets. By supplying an arbitrary probability distribution modeling the future price movement of a set of stocks, the Kelly fraction for investing each stock can be calculated by inverting a matrix involving only first and second moments. The framework works for one or a portfolio of stocks and the Kelly fractions can be efficiently calculated. For a simple model of geometric Brownian motion of a single stock we show that our calculated Kelly fraction agrees with existing results. We demonstrate that the Kelly fractions can be calculated easily for other types of probabilities such as the Gaussian distribution and correlated multivariate assets.

Full work available at URL: https://arxiv.org/abs/1806.05293

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zbMATH Keywords

stock marketsKelly criterionmultivariate portfolios

Mathematics Subject Classification ID

Applications of statistics to actuarial sciences and financial mathematics (62P05) Portfolio theory (91G10)

Cites Work

• Title not available (Why is that?)
• OPTIMAL INVESTMENT STRATEGIES FOR CONTROLLING DRAWDOWNS
• Optimal strategies for repeated games
• The Kelly Criterion and the Stock Market
• Capital growth with security
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Cited In (6)

• Analysis of Kelly-optimal portfolios
• Kelly gambling with the stock market and banks
• Implication of the Kelly criterion for multi-dimensional processes
• KELLY TRADING AND MARKET EQUILIBRIUM
• The Kelly criterion for spread bets
• The Kelly Criterion and the Stock Market

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