Kelly criterion formula: bet f* = (bp - q)/b
Kelly criterion
Kelly criterion formula: bet f* = (bp - q)/b
The Kelly criterion is a formula used for risk allocation in betting and investing. It aims to maximize the long-term expected value of the logarithm of wealth, which equates to maximizing the long-term expected geometric growth rate of wealth.
Example
If you bet $100 with odds of 2 (b=2) and the probability of winning (p) is 0.6, the Kelly bet size (f*) would be calculated as (2*0.6 - 0.4)/2 = 0.2. Thus, you would bet 20% of your bankroll.
Remember this
Understanding the Kelly criterion helps investors and gamblers optimize their bets and investments for maximum long-term growth.
Text adapted from Wikipedia, licensed under CC BY-SA 4.0.
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Educational content, not financial advice.
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