Course Name: Quantitative Portfolio Management, Section No: 4, Unit No: 8, Unit type: Notebook
Kelly criterion uses winning probability and win/loss ratio as per google. I am unable to understand how this notebook uses those ideologies. It seems somewhat just like Modern portfolio theory where the objective is to maximise returns using weight rebalancing. Just checking whether I am understanding it right and why there are no other variables in this notebook
Hi Rishab,
The Kelly Criterion is more about optimal position sizing for individual trades to maximize long-term growth, while MPT is about creating a well-diversified portfolio that balances risk and return.
The original Kelly Criterion is specific to bet sizing and not directly about the sum of logarithms of portfolio values. This is why there are certain variations to the Kelly Criterion formula so that it can be extended to portfolio optimization by maximizing the expected logarithm of returns, which relates to the idea of maximizing long-term growth.
Hope this helps