Building and Investment Portfolio Using the Kelly Criterion

Abstract

This article describes the issue of financial management, that is the way in which an investor decides how much to put into various investments. If an investor uses a strategy with positive expectations then correct management determines whether the investor will achieve a profi t or not and, if so, how much it will be. Th e first part of the article analyses the case of using a strategy in the market in which an investor can make a fixed profi t or fixed loss. Th e problem is how investor should manage their investments in order to maximize their value. Th e second section describes the consequences of an investor using this method of asset management. The third section describes the problem of maximizing wealth through managing market portfolio size when the profi t or loss on a single investment can have multiple values, and provides a practical example of the use of such an approach.