In the course Quantitative Portfolio Management in the Kelly Criterion and MPT you didnt include a major variable in calculating sharpe ratio and Kelly criterion.
The Risk free Rate.
How could this be?
Hi,
Usually, the risk free rate is considered as the U.S. Treasury bill, but as you will know, this can be different based on different points of time. Also, if you are from a different location, you might not refer to it as the risk free rate. Thus, the risk free rate will differ depending on the geography as well as the point of time.
Thus, for simplicity of calculations and implementations, the risk-free rate was not included. However, you may subtract the risk-free rate from mean returns to get a more accurate Sharpe ratio.
Thanks.