Log-Optimal Portfolios for Tree-Structured Wagers
Nigel R. O'Brian
Research Report 2001-11
Date: 17 October 2001
A well-known result of J.L. Kelly gives the log-optimal portfolio
for a horse race in terms of each runner's probability of winning
and corresponding betting returns. Here Kelly's result is
generalised to combinations of `exotic' bets, which depend on
runners finishing in specified order. The method takes the form of
a exact, recursive algorithm and applies more generally to yield a
log-optimal portfolio for any gambling situation where the available
bets have a natural tree-type structure.
Log-optimal. portfolio. gambling. bet. wager. Kelly. convexity.
AMS Subject Classification (1991)
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