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kelly criterion [5c2aaa5a]

Tags: statistics

  • www.herrold.com/brokerage/kelly.pdf

  • Criterion: \( f^* = p - \frac{q}{b} = \frac{bp-q}{b} = \frac{bp-(1-p)}{b} = \frac{p(b+1) - 1}{b}\)

    • \(f^*\) is the fraction of the current bankroll to wager

      • how much to bet

    • \(b\) is the net odds received on the wager

      • betting $10, on win, rewards $4 -> \(b = 0.4\)
    • \(p\) is the probability of a win
    • \(q = 1-p\) is the probability of loss