Submission Title
Session Title
Session 1-4-D: Game Math and a Legacy
Presentation Type
Event
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
Funding Sources
none
Competing Interests
none
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.
Comments
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