This calculator helps traders and investors determine the optimal size of a bet using the Kelly Criterion. It is designed to maximize the logarithm of wealth over the long term by calculating the percentage of the bankroll to be wagered.
All calculations are based on the standard Kelly Criterion formula as detailed in financial literature. For more information, consult authoritative sources such as academic papers and financial textbooks. All calculations strictly adhere to these sources.
Where:
Suppose you have a win probability of 60% and a win/loss ratio of 2. Using the Kelly Criterion formula, the optimal bet size is calculated as follows:
\[ f^* = \frac{(2 \times 0.6) - 0.4}{2} = 0.4 \]
This means you should bet 40% of your bankroll.
The Kelly Criterion is a mathematical formula used to determine the optimal size of a series of bets.
The formula calculates the proportion of the bankroll to wager on a given bet to maximize the logarithm of wealth.
While the Kelly Criterion is widely applicable, its assumptions may not hold in all market conditions. It is best used under conditions of certainty regarding win probabilities.
Miscalculating your win probability can lead to suboptimal or risky betting sizes. It is crucial to use reliable data.
Yes, it is often used in gambling to maximize returns while controlling risk, but it requires accurate estimates of probabilities and payoffs.