Financial markets, with their vast range of different investment opportunities, can be seen as a system of many different simultaneous games with diverse and often unknown levels of risk and reward. We introduce generalizations to the classic Kelly investment game [J.L. Kelly, IEEE Transactions on Information Theory 2 (1956) 185-189] that incorporates these features, and use them to investigate the influence of diversification and limited information on Kelly-optimal portfolios. In particular, we present approximate formulas for optimizing diversified portfolios and exact results for optimal investment in unknown games where the only available information is past outcomes.

Original languageEnglish
Pages (from-to)6151-6158
Number of pages8
JournalPhysica A: Statistical Mechanics and its Applications
Volume387
Issue number24
DOIs
StatePublished - 15 Oct 2008

    Scopus subject areas

  • Statistics and Probability
  • Condensed Matter Physics

    Research areas

  • Diversification, Information, Kelly game, Portfolio optimization

ID: 41386422