Finding the #MinimumRisk #portfolio on a two-security #EfficientFrontier

In the #Markowitz risk-return space, there is always a portfolio which #MinimizesVolatility. In recent years this allocation scheme has become increasingly popular as the risk free rate hovers near (or below) zero. For a portfolio of two securities, there is an analytic solution which allocates capital to both securities to minimize the portfolio volatility. We … Continue reading

The Kelly solution for one continuous distribution of possible returns

By Elliot Noma¬†with comments from Yu Bai The Kelly criterion is usually invoked for solving the optimal bet size for a two-outcome gamble. In other posts, we have considered the three outcome solution. Here we consider the optimal bet size for a specific family of continuous distributions, a uniform distribution of¬†outcomes over a unit interval. … Continue reading

How Kelly bet size and Number of bets affect Max drawdown

By Elliot Noma, Yu Bai and Manish Worlikar In this post we vary the fractions of Kelly bet size and the number of plays to see how they affect the maximum drawdown. Betting on Kelly size optimizes the long term returns. People can alternatively use various fractions of Kelly size such as full, half, quarter … Continue reading

Gambles with the same Expected return and Kelly bet size

By Elliot Noma, Yu Bai In our previous post we grouped gambles by their optimal bet sizes. Here we consider the subset of these groups in which the gambles share not only an optimal bet size, but also the same expected return. 1. Finding the set of gambles with same expected return and Kelly bet … Continue reading