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Implication Of The Kelly Criterion For Multi-Dimensional Processes

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  • YINGDONG LV

    ()
    (Department of Physics, Renmin University of China, Beijing, 100872, China)

  • BERNHARD K. MEISTER

    ()
    (Department of Physics, Renmin University of China, Beijing, 100872, China)

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    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 in terms of drift, short term risk-free rate and correlations for a set of generic multi-dimensional diffusion processes satisfying some simple conditions. Properties of the optimal investment strategy are studied. The paper ends with a short discussion of the implications of these ideas for financial markets.

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    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

    Volume (Year): 13 (2010)
    Issue (Month): 01 ()
    Pages: 93-112

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    Handle: RePEc:wsi:ijtafx:v:13:y:2010:i:01:p:93-112

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    Related research

    Keywords: Utility function; Kelly criterion; optimal investment strategy; self-financing; complete market; risk-neutral measure; Brownian motion; Ornstein–Uhlenbeck; diffusion processes; Value-at-Risk;

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