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Application of the Kelly Criterion to Ornstein-Uhlenbeck Processes

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  • Yingdong Lv
  • Bernhard K. Meister

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 for a set of price processes satisfying some simple conditions. Properties of the optimal investment strategy for assets governed by multiple Ornstein-Uhlenbeck processes 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, 2009. "Application of the Kelly Criterion to Ornstein-Uhlenbeck Processes," Papers 0903.2910, arXiv.org.
    • Handle: RePEc:arx:papers:0903.2910
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    File URL: http://arxiv.org/pdf/0903.2910
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    References listed on IDEAS

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    1. Hakansson, Nils H, 1971. "On Optimal Myopic Portfolio Policies, With and Without Serial Correlation of Yields," The Journal of Business, University of Chicago Press, vol. 44(3), pages 324-334, July.
    2. Vladislav Kargin, 2003. "Optimal Convergence Trading," Papers math/0302104, arXiv.org, revised Aug 2003.
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    Cited by:

    1. Bernhard K Meister & Henry CW Price, 2022. "NFTs: The Game is Afoot," Papers 2209.09956, arXiv.org.
    2. Bernhard K. Meister & Henry C. W. Price, 2022. "Darwin Among the Cryptocurrencies," Papers 2202.10340, arXiv.org.

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