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Kelly Investing with Iteratively Updated Estimates of the Probability of Success

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dc.contributor.advisor Balka, Jeremy
dc.contributor.advisor Desmond, Anthony song, Zheng 2017-12-20T19:00:36Z 2017-12-20T19:00:36Z 2017-12 2017-12-15 2017-12-20
dc.description.abstract The Kelly criterion is an investment strategy that determines the appropriate fraction of fortune to invest in positive expectation opportunities in order to maximize growth. This thesis investigates the performance of Kelly-related strategies in binary outcome opportunities when the probability of success is unknown and is estimated by a binomial proportion. The performance of strategies based on fixed and updated estimates of the probability of success is investigated through simulated coin tossing and binary stock market option scenarios. It is found that a strategy based on updated estimates perform better, especially when the initial error in estimation is large, but the updated estimates result in a high variance of wealth. Simulations show that a Kelly strategy based on updated estimates can sometimes be improved upon by choosing an appropriate fractional Kelly strategy, or by estimating the probability of success using an appropriate quantile of the Bayesian posterior distribution. en_US
dc.language.iso en en_US
dc.rights Attribution-ShareAlike 2.5 Canada *
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dc.title Kelly Investing with Iteratively Updated Estimates of the Probability of Success en_US
dc.type Thesis en_US Mathematics and Statistics en_US Master of Science en_US Department of Mathematics and Statistics en_US
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