Physical Sciences and Mathematics Commons^™

Self-Correcting Kelly Strategies For Skeptical Traders, Aaron C. Brown

International Conference on Gambling & Risk Taking

The Kelly criterion gives the appropriate bet size in idealized situations with known parameters. In financial trading situations parameters are generally unknown and the mathematical assumptions underlying the Kelly proof are not met precisely. Moreover a risk manager typically must cooperate with a trader who may be skeptical about both the Kelly criterion specifically and the concept of mathematical optimization of bet size in general.

This presentation tackles the problem of designing a Kelly-based system for setting trade risk management parameters that is both self-correcting (the system delivers good results even if initial parameter are misestimated or parameters change) and …

Estimating The Fraction Of The Kelly Bet, William Chin, Marc Ingenoso

International Conference on Gambling & Risk Taking

It is well known that an advantage gambler maximizes the average geometric growth rate by using Kelly betting. If the advantage is known precisely, then one can to use Full Kelly betting or, more commonly, some fraction of it. Systematic gamblers may have an advantage, but may not know exactly how large it is. This may be the case for e.g. sports bettors, blackjack and poker players and future traders. We show how they can estimate the fraction of full Kelly they have been employing, from their past results. This ongoing process enables them to select future bet sizing scientifically …