Assume that you can invest a fraction of your wealth in a portfolio P that yields a risky return of R P , and put the other fraction 1 in a bank account, paying the risk free interest rate R 0 Assume that both expected returns, P and r, are small of order O(), and that terms of order O( 2 )can be n...

Answer P RP The Kellyfraction is a measure of the opti ...

Assume that you can invest a fraction of your wealth in a portfolio P that yields

Question:

Assume that you can invest a fraction π of your wealth in a portfolio P that yields a risky return of R_P, and put the other fraction 1 − π in a bank account, paying the risk-free interest rate R₀. Assume that both expected returns, μP and r, are small of order O(∈), and that terms of order O(∈²)can be neglected. What is the optimal Kelly-fraction π* in this case?

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...

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