Diversification and limited information in the Kelly game

Matus Medo, Yury M. Pis'mak and Yi-Cheng Zhang

Papers from arXiv.org

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 [Kelly (1956)] 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.

Date: 2008-03, Revised 2008-07
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Citations: View citations in EconPapers (8)

Published in Physica A 387, 6151-6158 (2008)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:0803.1364

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