Application of the Kelly Criterion to Ornstein-Uhlenbeck Processes

Yingdong Lv; Bernhard Meister

Complex Sciences. First International Conference, Complex 2009, Shanghai, China, February 23-25, 2009. Revised Papers, Part 1

Research Article

Application of the Kelly Criterion to Ornstein-Uhlenbeck Processes

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@INPROCEEDINGS{10.1007/978-3-642-02466-5_105,
    author={Yingdong Lv and Bernhard Meister},
    title={Application of the Kelly Criterion to Ornstein-Uhlenbeck Processes},
    proceedings={Complex Sciences. First International Conference, Complex 2009, Shanghai, China, February 23-25, 2009. Revised Papers, Part 1},
    proceedings_a={COMPLEX PART 1},
    year={2012},
    month={5},
    keywords={utility function optimal investment strategy self-financing complete market risk-neutral measure Brownian motion Ornstein-Uhlenbeck},
    doi={10.1007/978-3-642-02466-5_105}
}

Yingdong Lv
Bernhard Meister
Year: 2012
Application of the Kelly Criterion to Ornstein-Uhlenbeck Processes
COMPLEX PART 1
Springer
DOI: 10.1007/978-3-642-02466-5_105

Yingdong Lv¹, Bernhard Meister¹

1: Renmin University of China

Abstract

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 discus-sion of the implications of these ideas for financial markets.

Keywords: utility function optimal investment strategy self-financing complete market risk-neutral measure Brownian motion Ornstein-Uhlenbeck

Published: 2012-05-11

: http://dx.doi.org/10.1007/978-3-642-02466-5_105