Application of the Kelly Criterion to Ornstein-Uhlenbeck Processes

Details Application of the Kelly Criterion to Ornstein-Uhlenbeck Processes Application of the Kelly Criterion to Ornstein-Uhlenbeck Processes

2009-03-17

arxiv.org/abs/0903.2910v1

Economy

Quantitative Finance

Portfolio Management

presented at Complex'2009 (Shanghai, Feb. 23-25)

Scientific paper

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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