Kelly Criterion
The fraction of capital that maximises long-run compound growth given an edge: edge divided by odds. Oversize the bet and volatility ruins you even when the odds genuinely favour you, which is why practitioners bet a fraction of full Kelly. Its lesson is that sizing is not a footnote - the same insight held at the wrong weight compounds to zero.
5 books · 4 people behind it · 3 resources
Start here
- Fortune's FormulaWilliam Poundstone, 2005
- A Man for All MarketsEdward O. Thorp, 2017
- The Kelly Capital Growth Investment CriterionLeonard C. MacLean, Edward O. Thorp, William T. Ziemba, 2011
The people behind it 4
Each person holds a book in this entry or names it in their own tags.
Investors 2
Academics 1
Journalists 1
Resources 3
- The Value of Probabilistic ThinkingShane Parrish · essay · Bayesian updating, fat tails and asymmetries together.
- Probabilities and PayoffsMichael J. Mauboussin · paper · The practicalities and psychology of expected value.
- Multiplicative SystemsShane Parrish · essay · One zero in the chain sets the whole product to zero.
Books 5
Leonard C. MacLean, Edward O. Thorp, William T. Ziemba · 2011
unverified