Kelly Criterion#
The Kelly Criterion is a mathematical formula used to determine the optimal size of a series of bets to maximize long-term growth while minimizing the risk of ruin.
Originally developed by John L. Kelly Jr. in 1956 for telecommunications applications, it has since been widely adopted in gambling, investing, and sports betting.
The core idea is to allocate capital proportionally to the edge one has over the market, ensuring that bets are neither too aggressive (which could lead to bankruptcy) nor too conservative (which would slow down potential growth).
By balancing risk and reward, the Kelly Criterion provides a systematic approach to bankroll management, making it a popular strategy among professional bettors and traders.
Examples: