Biased Roulette Wheel: A Quantitative Trading Strategy Approach

TL;DR

This paper applies quantitative trading strategies to a biased roulette wheel, analyzing real data to assess short-term profitability and comparing betting systems.

Contribution

It introduces a novel approach using quantitative finance tools to evaluate roulette strategies with real-world data and identifies the Ornstein-Uhlenbeck process in number probabilities.

Findings

Probabilities follow an Ornstein-Uhlenbeck process

Flat betting outperforms Kelly Criterion short-term

Real roulette data used for analysis

Abstract

The purpose of this research paper it is to present a new approach in the framework of a biased roulette wheel. It is used the approach of a quantitative trading strategy, commonly used in quantitative finance, in order to assess the profitability of the strategy in the short term. The tools of backtesting and walk-forward optimization were used to achieve such task. The data has been generated from a real European roulette wheel from an on-line casino based in Riga, Latvia. It has been recorded 10,980 spins and sent to the computer through a voice-to-text software for further numerical analysis in R. It has been observed that the probabilities of occurrence of the numbers at the roulette wheel follows an Ornstein-Uhlenbeck process. Moreover, it is shown that a flat betting system against Kelly Criterion was more profitable in the short term.