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Implication Of The Kelly Criterion For Multi-Dimensional Processes

Author

Listed:
  • 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)

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.

Suggested Citation

  • Yingdong Lv & Bernhard K. Meister, 2010. "Implication Of The Kelly Criterion For Multi-Dimensional Processes," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 13(01), pages 93-112.
    • Handle: RePEc:wsi:ijtafx:v:13:y:2010:i:01:n:s0219024910005693
    DOI: 10.1142/S0219024910005693
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    References listed on IDEAS

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    1. Vladislav Kargin, 2003. "Optimal Convergence Trading," Papers math/0302104, arXiv.org, revised Aug 2003.
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