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Implication Of The Kelly Criterion For Multi-Dimensional Processes

  • 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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    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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    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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