For example, if you expect to place 5 bets per weekend throughout a 17-week NFL season, you would set “Independent Events” to 5 and Consecutive Series to 17. Either simultaneous independent events or mutually exclusive outcomes (as in a single event that can have one of several winners, e.g., a horse race mulvehillhvac.com or the American Idol competition). The Kelly Criterion is a famous formula developed by its name-sake John Kelly Jr and is used by many a handicapper and blackjack player. It is an effective way to manage your bankroll and keep you in check. Claiming one Welcome offer will mean the player cannot claim any other welcome bonus.

If we wish to become an effective long-term sports handicapper (and that is the goal, correct?), bankroll management is just as fundamental as selecting winners. Note that under the unrealistic assumption that money is cheap, the higher the leverage , the better. Let’s see what happens when we apply a margin of 2.5% to the official interest rate. Thorp had such great success is that he was using the Black-Scholes equation three years before Fischer Black and Myron Scholes published it. Another reason is that he systematically applied the Kelly criterion to the stock market. He outlines some clues as to how he went about this in his paper, “The Kelly Criterion and the Stock Market”, which we summarise in the following.

Ed Thorp, Jack Schwager, And The Kelly Criterion

The Kelly Criterion is a mathematical formula developed by a researcher called J. The criterion is a informative post method developed to maximise the potential return of any particular bet or investment, and can be applied to any form of sports betting. There is a level of complexity involved in its use along with a degree of risk but the Kelly Criterion remains one of the most well-known betting strategies. Kelly’s base assumption that 100% of capital can be allocated to a single bet necessitates that the formula is naturally cautious when sizing a position that has potential loss.

Betting Strategies For Horse Racing Part 2: Kelly Criterion

In this article, I explain how I think you should properly use the Kelly criterion as applied to long-term value investing. But before I do that, there are two mental models that are vital to know before you can fully appreciate what the Kelly criterion has to offer and what it doesn’t have to offer. Check out Part 2 of our answers here, where we get the opinions of professional sports bettor – Spanky, host of the Business of Betting Podcast, betting blog – Day 25 and betting blog – The Church of Betting. The more you know the business and industry, the more precise the numbers will be.

The default thinking about leverage is in the short term. On the one hand, it’s a very basic mathematical concept offering great things to those who understand it. But on the other hand, it’s hardly included in any textbooks in economics, investing, or, for that matter, portfolio management. To my knowledge, the concept is not in the entire CFA program and I never encountered it during my time in business school. So you run a real risk of losing a huge % all at once. When the odds are heavily in your favor, don’t panic, but profit from the opportunity Mr. Market is giving you.

Stochastic gradient-based algorithms for solving this problem are developed and compared with the simplex method. The solutions may be regarded as a generalization of ‘Kelly staking’ to the case of many simultaneous bets. Properties of the solutions are examined in two example cases using real odds from sports bookmakers. The algorithms that are developed also have wide applicability beyond sports betting and may be extended to general portfolio optimization problems, with any reasonable utility function.

Appendix: Kelly Criterion As An R

If you put all your eggs in one basket, you eventually go broke, even though your “expected value” of a given flip is very high. But if you risk too small you don’t get to maximize the gain either. In the general game, it performs poorly because it self-limits to $250 in the many games where the max cap is higher, and it often wipes out to $0 in games where the edge is small or negative.

I didn’t know there’s a correspondence to the Kelly criterion. It’s also worth (I think!) exploring how it generalises past sequences of discrete 0–1 outcomes. There are horse race situations , portfolio selection, half-Kelly type strategies in various spaces, and plenty more.