Diversification and limited information in the Kelly game

Matúš Medo, Pis’mak, Yury M. and Yi-Cheng Zhang

Physica A: Statistical Mechanics and its Applications, 2008, vol. 387, issue 24, 6151-6158

Abstract: Financial markets, with their vast range of different investment opportunities, can be seen as a system of many different simultaneous games with diverse and often unknown levels of risk and reward. We introduce generalizations to the classic Kelly investment game [J.L. Kelly, IEEE Transactions on Information Theory 2 (1956) 185–189] that incorporates these features, and use them to investigate the influence of diversification and limited information on Kelly-optimal portfolios. In particular, we present approximate formulas for optimizing diversified portfolios and exact results for optimal investment in unknown games where the only available information is past outcomes.

Keywords: Kelly game; Portfolio optimization; Diversification; Information (search for similar items in EconPapers)
Date: 2008
References: View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:387:y:2008:i:24:p:6151-6158

DOI: 10.1016/j.physa.2008.07.007

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