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Deriving the Kelly Criterion to Maximise Profits

(obrhubr.org)
45 points obrhubr | 2 comments | 12 Oct 24 21:16 UTC | HN request time: 0s | source
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roenxi ◴[18 Oct 24 00:16 UTC] No.41875153[source]▶
A word that is good to know here is ergodic [0]. Which I must admit to not really understanding although it is something like the average system behaviour being equivalent to a typical point's behaviour. If a process is non-ergodic then E[X] is usually not as helpful as it seems in formulating a strategy.

[0] https://en.wikipedia.org/wiki/Ergodic_process

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1. KK7NIL ◴[18 Oct 24 00:35 UTC] No.41875266[source]▶
Some math/finance nerds made a whole YouTube channel about ergodicity, which I've been really enjoying: https://youtu.be/VCb2AMN87cg

Nassim Taleb also talks about this quite a lot: https://youtu.be/91IOwS0gf3g

TL;DR: while a single investment may be ergodic, portfolio management (the math behind weighting successive and concurrent investments/bets) is not, as it has a strong dependence on all prior states.

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2. uoaei ◴[18 Oct 24 00:53 UTC] No.41875372[source]▶
this comment may be confusing and I doubt this will help much but:

Ergodicity is less about memorylessness and more about the constraints on transitions into this or that state. A system is ergodic if "anything that can be an outcome, eventually will happen".