Application of the Kelly Criterion to Ornstein-Uhlenbeck Processes

Yingdong Lv and Bernhard K. Meister

Chapter 21 in The Kelly Capital Growth Investment Criterion:Theory and Practice, 2011, pp 285-297 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In this paper, we study the Kelly criterion in the continuous time framework building on the work of E.O. Thorp and others. The existence of an optimal strategy is proven in a general setting and the corresponding optimal wealth process is found. A simple formula is provided for calculating the optimal portfolio for a set of price processes satisfying some simple conditions. Properties of the optimal investment strategy for assets governed by multiple Ornstein-Uhlenbeck processes are studied. The paper ends with a short discussion of the implications of these ideas for financial markets.

Keywords: Kelly Criterion; Dynamic Investment Analysis; Capital Growth Theory; Sports Betting; Hedge Fund Strategies; Speculative Investing; Fortune 's Formula (search for similar items in EconPapers)
Date: 2011
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