Module V: Money management
25. The Kelly criterion
Deriving the optimal stake size, and why full Kelly is suicidal.
Kelly calculator
Shows what stake fraction the Kelly formula returns from your estimated gap and your bankroll. A mathematical illustration, not a stake recommendation.
Full Kelly ratio7.6%
After the chosen fraction1.9% of the bankroll
Stake fraction the formula returns1 908 HUF
Full Kelly is very sensitive to estimation error, which is why Chapter 25 recommends fractional Kelly. If your probability is too optimistic, the formula suggests too large a stake.
Chapter outline
- 25.1Derivation, formula
- 25.2The dangers of full Kelly
- 25.3Fractional Kelly in practice