Analysis of Kelly-optimal portfolios

@misc{citeulike:2142460, abstract = {We investigate the use of Kelly's strategy in the construction of an optimal portfolio of assets. With asset prices undergoing a multiplicative random process, we derive approximate analytical results for the optimal investment fractions under various constraints. We show that, when returns and volatilities of the assets are small and borrowing is forbidden, the Kelly-optimal portfolio lies on Markowitz Efficient Frontier. When short positions are also forbidden, only a small fraction of the available assets is included in the Kelly-optimal portfolio. This phenomenon, that we call condensation, is explored in detail.}, author = {Laureti, Paolo and Medo, Matus and Zhang, Yi-Cheng }, citeulike-article-id = {2142460}, eprint = {0712.2771}, keywords = {finance, kelly, mean, optimization, portfolio, statistics, variance}, month = {Dec}, posted-at = {2007-12-18 20:35:00}, priority = {2}, title = {Analysis of Kelly-optimal portfolios}, url = {http://arxiv.org/abs/0712.2771}, year = {2007} }

TY - ELEC ID - citeulike:2142460 L3 - citeulike-article-id:2142460 TI - Analysis of Kelly-optimal portfolios N2 - We investigate the use of Kelly's strategy in the construction of an optimal portfolio of assets. With asset prices undergoing a multiplicative random process, we derive approximate analytical results for the optimal investment fractions under various constraints. We show that, when returns and volatilities of the assets are small and borrowing is forbidden, the Kelly-optimal portfolio lies on Markowitz Efficient Frontier. When short positions are also forbidden, only a small fraction of the available assets is included in the Kelly-optimal portfolio. This phenomenon, that we call condensation, is explored in detail. KW - finance KW - kelly KW - mean KW - optimization KW - portfolio KW - statistics KW - variance AU - Laureti, Paolo AU - Medo, Matus AU - Zhang, Yi-Cheng PY - 2007/Dec/17/ UR - http://arxiv.org/abs/0712.2771 ER -