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It is scientific. I'm not sure if it's publishable. The Kelly problem is to maximise some function given a set of expected outcomes and probabilities. The function is not up for grabs, its expected log utility. If you change that function you're doing something else - it isn't "Kelly". That...

That's a nice formula. Of course my point still stands - the effect of the BSF on fraction level will dominate the choice of kelly sizing formula for negatively skewed trading returns. GAT

Yes, using a formula that accounts for higher moments is important (whether 3, 4, 5 or 6). But I still think that Kelly blowups usually happen not because of the wrong formula, but because of a poor appreciation of the uncertainty of returns. I'm going to labour the point, in case there are...

Oh and congratulations on the new arrival. Bet you're glad to be systematic - I'd hate to be a discretionary trader with a young baby. (My youngest daughter was born in November .... 2008. Stressful times all round!) GAT

My gut feeling is diversification is better. However this topic keeps coming up so it will be the subject of a research project and a blog post, sometime in the next couple of weeks hopefully. GAT

I know that account size limits the futures you can trade. Personally, my starting point would be a smaller number of futures, at least one from each asset class (bonds, rates ,equities, vol, ags, metals, fx). It looks like you could easily have 2 or 3 from each asset class. The diversification...

Let me try putting my point across a different way, as you seem to have had the red mist descend on seeing the words 'sharpe ratio' without the main point of the post coming across. In reality: "There is a 35% chance that you win 20% of your bet ; There is a 25% chance that you lose 15% of...

I've only just found this thread. I'll be watching with interest. Good luck. GAT

I disagree. We don't know the inputs into the formula. Let's take a simple continous kelly formula, that uses the first two moments of the return distribution, mean and standard deviation. Let's collapse those into a Sharpe ratio. If I have a 40 year backtest with a true SR of 0.5, then...

This is the only place I've been where, with an expected average holding period of a few weeks, I'm considered 'long 'term'... GAT

In the first puzzle I just read the peak off a graph. In the second puzzle I used solver to get a more precise answer. While this is intellectually interesting, you and I both know that in the real world you'd be lucky to know your correct Kelly to within an order of magnitude. GAT

Hi LT Thanks for the mention. The obvious question I have is why you have no financial contracts? (Bonds, equities, STIR, vol). GAT

In my world 77.793% versus 75% means diddly squat.... GAT

Only the one for the first two moments was wrong ( the full distributional one was correct). And I didn't even use excel for that, just the nearest envelope. GAT

There is a closed form solution (it's just maximising some logs, so differentiable) but I just did it in excel which is much quicker. GAT

Ditto for me. GAT

Just to be clear a win loss ratio of 3:1 or whatever, doesn't mean you're using profit targets. If you're using a trailing stop, or a contionus trend following rule as I do, then in theory you can have an infinite win:loss rate. In practice your average win:loss rate will be positive, but...

I disagree with some others, this quite an interesting poll. Are you more suited to trend following, or mean reversion / relative value trading? Do you prefer positive or negative skew? Would you rather be long or short gamma? Would you prefer buying insurance, or selling it? Assuming of course...

The reasons you give are correct (flexibility, control, fun). Also please bear in mind where I've come from; when I came to do this project I'd been designing and building automated trading systems for nearly a decade (though admittedly I'd never built a complete end to end system, mainly...

Kelly tells me the absolute maximum I should risk. It doesn't tell me whether I'm going to be happy with that level of risk. Increasing my risk by 2.5 times would terrify me. I'd be too tempted to meddle with my system. I don't need the extra income, thanks very much. As well as that you need...