Online bankroll management

[pzhon]

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I just read an interesting book on cash management called: Fortune's formula by William Poundstone. It discusses many things, but the relevant topic is the 'Kelly Criterion" .


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The simple guideline I gave in the linked post, bankroll = comfort * standard deviation^2 / win rate, is closely related to the Kelly criterion. Comfort is the inverse of the Kelly fraction.

Most people find the swings you will experience by using the Kelly criterion to be too large. Most people prefer using fractional Kelly system which gives you almost as much growth for substantially reduced swings. So, you can use the pure Kelly criterion if you want, but note that many people have cause for rejecting it.

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Essentially, you always bet a percentage of your stake. ie 10%.

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No, not when you are presented with several wagers with different returns. You should not assume that your win rate is the same no matter what level you play.

What Kelly wrote, in the first paper on the subject, is far beyond the simplifications most people attribute to him. When people look for generalizations of the Kelly criterion, they often are working to rediscover what Kelly put in that first paper.