KELLY CAPITAL GROWTH INVESTMENT CRITERION, THE: THEORY AND PRACTICE (World Scientific Handbook in Financial Economics) Illustrated Edition

There are two methods to consider in a risky strategy.1) The first is to know all parameters about the future and engage in optimized portfolio construction, a lunacy unless one has a god-like knowledge of the future. Let us call it Markowitz-style. In order to implement a full Markowitz- style optimization, one needs to know the entire joint probability distribution of all assets for the entire future, plus the exact utility function for wealth at all future times. And without errors! (I have shown that estimation errors make the system explode.)2) Kelly's method (or, rather, Kelly-Thorpe), developed around the same period, which requires no joint distribution or utility function. It is very robust. In practice one needs to estimate the ratio of expected profit to worst- case return-- dynamically adjusted to avoid ruin. In the case of barbell transformations, the worst case is guaranteed (leave 80% or so of your money in reserves). And model error is much, much milder under Kelly criterion. So, assuming one has the edge (as a sole central piece of information), engage in a dynamic strategy of variable betting, getting more conservative after losses ("cut your losses") and more aggressive "with the house's money". The entire focus is the avoidance of gambler's ruin.The first strategy was only embraced by academic financial economists --empty suits without skin in the game -- because you can make an academic career writing BS papers with method 1 much better than with method 2. On the other hand EVERY SURVIVING speculator uses explicitly or implicitly method 2 (evidence: Ray Dalio, Paul Tudor Jones, Renaissance, even Goldman Sachs!) For the first method, think of LTCM and the banking failure.Let me repeat. Method 2 is much, much, much more scientific in the true sense of the word, that is rigorous and applicable. Method 1 is good for "job market papers" . Now this book presents all the major papers for the second line of thinking. It is almost exhaustive; many great thinkers in Information theory and probability (Ed Thorpe, Leo Breiman, T M Cover, Bill Ziemba) are represented... even the original paper by Bernouilli.Buy 2 copies, just in case you lose one. This book has more meat than any other book in decision theory, economics, finance, etc...

Excellent content that explain the kelly criterion. To those study finance, buy this book.

Various papers that expound the Kelly Criterion and its application to dynamic investing. Not a book for the layman.

Excellent, bought it on Nassim's recommendation, quite tough for me though. Requires mathematical maturity.

Complex but complete, covers fortunes formula from every angle

Ed Thorp, Leonard Maclean, and William Ziemba wrote a masterpiece here. For me, this is a very important textbook because it captures the importance of position size. What many people in the financial world fail to recognize is the tethered relationship that exists between probability expectations and position size. This book doesn't just show the calculations for the Kelly criterion, but it also provides methods for trying to develop a good expected value for certain types of events and outcomes. If you're a serious investor, you would be crazy to pass on this book. For one reason, Ed Thorp is the living example of why the Efficient Market Hypothesis is false - simply look at his 227 months out of 230 for beating the market and you'll see what I'm talking about... Thank you for sharing this information gentleman!

This book consists of research papers in applying Kelly Criterion and building foundation of using it. As Nasim Taleb wrote in his review, you can actually see the thinking behind Edward Thorp, arguably the best hedge fund manager to this day ( on par with Jim Simons from Renaissance Technology). I highly recommend this book to any quants interested in applying Kelly Criterion.

Kindle version appears to be a bad OCR. The mathematical notation makes this problem glaring.