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تسجيل مستخدم جديدApplication of the Kelly Criterion to Ornstein-Uhlenbeck Processes
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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.
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We develop a general framework for applying the Kelly criterion to stock markets. By supplying an arbitrary probability distribution modeling the future price movement of a set of stocks, the Kelly fraction for investing each stock can be calculated
by inverting a matrix involving only first and second moments. The framework works for one or a portfolio of stocks and the Kelly fractions can be efficiently calculated. For a simple model of geometric Brownian motion of a single stock we show that our calculated Kelly fraction agrees with existing results. We demonstrate that the Kelly fractions can be calculated easily for other types of probabilities such as the Gaussian distribution and correlated multivariate assets.
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