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Fractional Kelly Strategies for Benchmarked Asset Management

In: THE KELLY CAPITAL GROWTH INVESTMENT CRITERION THEORY and PRACTICE

Author

Listed:
  • Mark Davis
  • Sébastien Lleo

Abstract

In this paper, we extend the definition of fractional Kelly strategies to the case where the investor's objective is to outperform an investment benchmark. These benchmarked fractional Kelly strategies are efficient portfolios even when asset returns are not lognormally distributed. We deduce the benchmarked fractional Kelly strategies for various types of benchmarks and explore the interconnection between an investor's risk-aversion and the appropriateness of their investment benchmarks.

Suggested Citation

  • Mark Davis & Sébastien Lleo, 2011. "Fractional Kelly Strategies for Benchmarked Asset Management," World Scientific Book Chapters, in: Leonard C MacLean & Edward O Thorp & William T Ziemba (ed.), THE KELLY CAPITAL GROWTH INVESTMENT CRITERION THEORY and PRACTICE, chapter 27, pages 385-407, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814293501_0027
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    Citations

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    Cited by:

    1. Eckhard Platen & David Taylor, 2016. "Loading Pricing of Catastrophe Bonds and Other Long-Dated, Insurance-Type Contracts," Papers 1610.09875, arXiv.org.
    2. Sonntag, Dominik, 2018. "Die Theorie der fairen geometrischen Rendite [The Theory of Fair Geometric Returns]," MPRA Paper 87082, University Library of Munich, Germany.
    3. Chung-Han Hsieh & B. Ross Barmish & John A. Gubner, 2017. "Kelly Betting Can Be Too Conservative," Papers 1710.01786, arXiv.org.
    4. Ke Du & Eckhard Platen, 2016. "Benchmarked Risk Minimization," Mathematical Finance, Wiley Blackwell, vol. 26(3), pages 617-637, July.
    5. Chung I Lu, 2023. "Evaluation of Deep Reinforcement Learning Algorithms for Portfolio Optimisation," Papers 2307.07694, arXiv.org, revised Jul 2023.
    6. Jan Obłój & Thaleia Zariphopoulou, 2021. "In memoriam: Mark H. A. Davis and his contributions to mathematical finance," Mathematical Finance, Wiley Blackwell, vol. 31(4), pages 1099-1110, October.
    7. Chung-Han Hsieh & B. Ross Barmish & John A. Gubner, 2019. "The Impact of Execution Delay on Kelly-Based Stock Trading: High-Frequency Versus Buy and Hold," Papers 1907.08771, arXiv.org.

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