[HN Gopher] Deriving the Kelly Criterion to Maximise Profits
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       Deriving the Kelly Criterion to Maximise Profits
        
       Author : obrhubr
       Score  : 15 points
       Date   : 2024-10-12 21:16 UTC (5 days ago)
        
 (HTM) web link (obrhubr.org)
 (TXT) w3m dump (obrhubr.org)
        
       | wenc wrote:
       | The Kelly criterion is almost never used as-is because it is very
       | sensitive to probability of success, which is hard to know
       | accurately and in many cases, dynamically changing. This is easy
       | to see in an Excel spreadsheet. Changing the probability by even
       | 0.01 percent can vastly shift the results. The article calls this
       | out in the last paragraph.
       | 
       | The article mentions fractional Kelly is a hedge. But what
       | fraction is optimal to use? That is also unknowable.
       | 
       | Finance folks, correct me if I'm wrong, but the Kelly Criterion
       | is rarely used in financial models but is more a rule of thumb
       | that says roughly if you have x $ and probability p, in a perfect
       | world you should only bet y amount. But in reality y cannot be
       | determined accurately because p is always changing or hard to
       | measure.
        
       | quickquest wrote:
       | For the coin flipping scenario, what happens to the casino?
       | Shouldn't they lose money in the long run as well? Or is it that
       | they're under the kelly threshold with all the house cash?
        
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       (page generated 2024-10-17 23:00 UTC)