Where Price Discovery

    SYS:ONLINE  |  FOCUS: LIQUIDITY THEORY  |  MODE: RESEARCH
    Research Published On
    Independent Research · Non-Commercial

    Core Research Areas

    In a correlated multi-asset setting, the optimal growth-maximising portfolio weights generalise the scalar Kelly fraction to a vector problem involving the covariance structure of returns:

    where $\mathbf{f}^*$ is the vector of optimal fractions, $\boldsymbol{\Sigma}$ is the return covariance matrix, and $\boldsymbol{\mu}$ is the expected excess return vector.

    // OPTIMAL CAPITAL ALLOCATION
    $$\mathbf{f}^* = \boldsymbol{\Sigma}^{-1}\boldsymbol{\mu}$$ $$G^* = r_f + \frac{1}{2}\boldsymbol{\mu}^\top \boldsymbol{\Sigma}^{-1} \boldsymbol{\mu}$$

    Research Output

    Researchers