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On Kelly Betting: Some Limitations

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  • Chung-Han Hsieh
  • B. Ross Barmish

Abstract

The focal point of this paper is the so-called Kelly Criterion, a prescription for optimal resource allocation among a set of gambles which are repeated over time. The criterion calls for maximization of the expected value of the logarithmic growth of wealth. While significant literature exists providing the rationale for such an optimization, this paper concentrates on the limitations of the Kelly-based theory. To this end, we fill a void in published results by providing specific examples quantifying what difficulties are encountered when Taylor-style approximations are used and when wealth drawdowns are considered. For the case of drawdown, we describe some research directions which we feel are promising for improvement of the theory.

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  • Chung-Han Hsieh & B. Ross Barmish, 2017. "On Kelly Betting: Some Limitations," Papers 1710.01787, arXiv.org.
    • Handle: RePEc:arx:papers:1710.01787
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    Cited by:

    1. Radchenko, Tatiana (Радченко, Татьяна) & Parshina, Elena (Паршина, Елена), 2014. "Regulatory Impact Assessment in Russia: Practical Applications and conclusions of the theory [Оценка Регулирующего Воздействия В России: Практика Применения И Выводы Из Теории]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 3.

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