Submission Type

Presentation

Session Title

Session 1-4-D: Game Math and a Legacy

Location

Caesars Palace, Las Vegas, Nevada

Start Date

28-5-2019 3:30 PM

End Date

28-5-2019 4:55 PM

Disciplines

Finance and Financial Management | Statistics and Probability

Abstract

It is well-known that expected portfolio growth is maximized by maximizing

expected logarithmic utility. This investment criterion is known as Kelly betting.

It has many optimality properties but is considered to be risky. Blackjack

teams and other advantage gamblers practice a fraction of the Kelly optimal to

decrease risk. Some hedge fund managers are thought to practice according to

Kelly principles. We use a continuous multivariate Geometric Brownian motion

model and present an interval estimate for the historical fraction for a portfolio

of correlated bets, possibly including a risk-free asset. Historical data comes

from a range of sources and the results provide a risk aversion statistic, which

corresponds to an isoelastic utility function and level of relative risk aversion.

Keywords

Kelly, portfolio, isoelastic, utility, fraction, risk

Author Bio

William Chin, Professor, DePaul University, Chicago

Ph.D., Wisconsin 1985

Funding Sources

none

Competing Interests

none

Comments

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May 28th, 3:30 PM May 28th, 4:55 PM

Kelly fraction estimation for multiple correlated bets

Caesars Palace, Las Vegas, Nevada

It is well-known that expected portfolio growth is maximized by maximizing

expected logarithmic utility. This investment criterion is known as Kelly betting.

It has many optimality properties but is considered to be risky. Blackjack

teams and other advantage gamblers practice a fraction of the Kelly optimal to

decrease risk. Some hedge fund managers are thought to practice according to

Kelly principles. We use a continuous multivariate Geometric Brownian motion

model and present an interval estimate for the historical fraction for a portfolio

of correlated bets, possibly including a risk-free asset. Historical data comes

from a range of sources and the results provide a risk aversion statistic, which

corresponds to an isoelastic utility function and level of relative risk aversion.