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Modified Kelly criteria

Author

Listed:
  • Chu Dani

    (Department of Statistics and Actuarial Science, Simon Fraser University, 8888 University Drive, Burnaby BC V5A1S6, Canada)

  • Wu Yifan

    (Department of Statistics and Actuarial Science, Simon Fraser University, 8888 University Drive, Burnaby BC V5A1S6, Canada)

  • Swartz Tim B.

    (Department of Statistics and Actuarial Science, Simon Fraser University, 8888 University Drive, Burnaby BC V5A1S6, Canada)

Abstract

This paper considers an extension of the Kelly criterion used in sports wagering. By recognizing that the probability p of placing a correct wager is unknown, modified Kelly criteria are obtained that take the uncertainty into account. Estimators are proposed that are developed from a decision theoretic framework. We observe that the resultant betting fractions can differ markedly based on the choice of loss function. In the cases that we study, the modified Kelly fractions are smaller than original Kelly.

Suggested Citation

  • Chu Dani & Wu Yifan & Swartz Tim B., 2018. "Modified Kelly criteria," Journal of Quantitative Analysis in Sports, De Gruyter, vol. 14(1), pages 1-11, March.
    • Handle: RePEc:bpj:jqsprt:v:14:y:2018:i:1:p:1-11:n:3
    DOI: 10.1515/jqas-2017-0122
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    References listed on IDEAS

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    1. Feng Guanhao & Polson Nicholas & Xu Jianeng, 2016. "The market for English Premier League (EPL) odds," Journal of Quantitative Analysis in Sports, De Gruyter, vol. 12(4), pages 167-178, December.
    2. Paul A. Samuelson, 2011. "Why We Should Not Make Mean Log of Wealth Big Though Years to Act Are Long," World Scientific Book Chapters, in: Leonard C MacLean & Edward O Thorp & William T Ziemba (ed.), THE KELLY CAPITAL GROWTH INVESTMENT CRITERION THEORY and PRACTICE, chapter 34, pages 491-493, World Scientific Publishing Co. Pte. Ltd..
    3. Swartz Tim B. & Tennakoon Aruni & Nathoo Farouk & Tsao Min & Sarohia Parminder, 2011. "Ups and Downs: Team Performance in Best-of-Seven Playoff Series," Journal of Quantitative Analysis in Sports, De Gruyter, vol. 7(4), pages 1-17, October.
    4. Robin Insley & Lucia Mok & Tim Swartz, 2004. "Issues Related to Sports Gambling," Australian & New Zealand Journal of Statistics, Australian Statistical Publishing Association Inc., vol. 46(2), pages 219-232, June.
    5. Rose D. Baker & Ian G. McHale, 2013. "Optimal Betting Under Parameter Uncertainty: Improving the Kelly Criterion," Decision Analysis, INFORMS, vol. 10(3), pages 189-199, September.
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    Cited by:

    1. Matej Uhr'in & Gustav v{S}ourek & Ondv{r}ej Hub'av{c}ek & Filip v{Z}elezn'y, 2021. "Optimal sports betting strategies in practice: an experimental review," Papers 2107.08827, arXiv.org.
    2. Hubáček, Ondřej & Šír, Gustav, 2023. "Beating the market with a bad predictive model," International Journal of Forecasting, Elsevier, vol. 39(2), pages 691-719.

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