Kelly criterion for variable pay-off
Ricardo P\'erez-Marco
TL;DR
This paper extends the Kelly criterion to games with variable pay-offs, deriving a fundamental integral equation for the optimal betting fraction, which is shown to be smaller than the classical Kelly fraction for constant pay-offs.
Contribution
It introduces a new integral equation for the Kelly fraction in variable pay-off games and compares it to the classical Kelly fraction.
Findings
Kelly fraction for variable pay-off is smaller than for constant pay-off.
Derived a fundamental integral equation for the Kelly criterion.
Provides theoretical insight into optimal betting strategies with variable outcomes.
Abstract
We determine Kelly criterion for a game with variable pay-off. The Kelly fraction satisfies a fundamental integral equation and is smaller than the classical Kelly fraction for the same game with the constant average pay-off.
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Taxonomy
TopicsOptimization and Mathematical Programming