Application of the Kelly Criterion to Ornstein-Uhlenbeck Processes

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Lv, Yingdong
Meister, Bernhard K.
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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.
Comment: presented at Complex'2009 (Shanghai, Feb. 23-25)
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Quantitative Finance - Portfolio Management
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