Kelly Criterion and its Application

Abstract

 Kelly Criterion is a betting strategy that maximizes the long-term growth rate of principal in independent repeated bets. Kelly formula is beneficial to fund management and portfolio investment, and its application in investment is particularly prominent. In this paper, we take Kelly's criterion as the center, give the proof of Kelly's criterion with different methods and angles, and generalize it to a more general form. At the same time, this paper also illustrates the rationality of Kelly's criterion through examples and data simulation.