Partial-Kelly Strategies and Expected Utility: Small-Edge Asymptotics

Joseph B. Kadane ()
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Joseph B. Kadane: Department of Statistics, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213

Decision Analysis, 2011, vol. 8, issue 1, 4-9

Abstract: Partial-Kelly strategies, proposed because full-Kelly strategies that use log of fortune as utility were found to be too risky, are examined from the perspective of maximizing expected utility. The results are as follows: (1) there is no utility function that is independent of the risks it confronts and that exactly has partial-Kelly strategies as the optimal strategy; and (2) constant relative risk aversion utility, with the constant relative risk parameter equal to the reciprocal of the partial-Kelly parameter, is a good approximation to such a utility function, particularly when the investor's edge is small.

Keywords: Kelly strategies; partial-Kelly; utility; constant relative risk aversion (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (9)

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