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Partial-Kelly Strategies and Expected Utility: Small-Edge Asymptotics

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  • Joseph B. Kadane

    (Department of Statistics, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

Abstract

Partial-Kelly strategies, proposed because full-Kelly strategies that use log of fortune as utility were found to be too risky, are examined from the perspective of maximizing expected utility. The results are as follows: (1) there is no utility function that is independent of the risks it confronts and that exactly has partial-Kelly strategies as the optimal strategy; and (2) constant relative risk aversion utility, with the constant relative risk parameter equal to the reciprocal of the partial-Kelly parameter, is a good approximation to such a utility function, particularly when the investor's edge is small.

Suggested Citation

  • Joseph B. Kadane, 2011. "Partial-Kelly Strategies and Expected Utility: Small-Edge Asymptotics," Decision Analysis, INFORMS, vol. 8(1), pages 4-9, March.
    • Handle: RePEc:inm:ordeca:v:8:y:2011:i:1:p:4-9
    DOI: 10.1287/deca.1100.0197
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    References listed on IDEAS

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    Cited by:

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