Abstract
We propose a Multivariate Volatility Regulated Kelly strategy, which has extra penalization on variance compared to the Kelly criterion. The objective function is constructed and solved. We show the superiority of our method in relatively low correlated portfolios, relative to the fractional Kelly and full Kelly strategies. Our strategy reduces the short-term risk without sacrificing the growth rate to invest more in risk-free assets. Simulation results and Chinese commodity future empirical results strongly support our method.
Highlights
Both the Kelly criterion and fractional Kelly strategies play important roles in asset allocation and portfolio investment
We propose a Multivariate Volatility Regulated Kelly strategy, which has extra penalization on variance compared to the Kelly criterion
We examine the relative performance of the full Kelly and Multivariate Volatility Regulated Kelly (MVRK) strategies
Summary
Both the Kelly criterion and fractional Kelly strategies play important roles in asset allocation and portfolio investment. Rather than maintaining the optimality of fractional Kelly strategies, we are more interested in seeking better risk estimators and giving inspiration in Kelly portfolio management. We call our approach the Multivariate Volatility Regulated Kelly (MVRK) strategy, which provides a modified covariance estimator that is more adapted to low correlated portfolios. Our results show that MVRK outperforms the full Kelly and fractional Kelly strategies in relatively low correlated portfolios. This is the main contribution of the paper. The Kelly Criterion Portfolio and Fractional Kelly Strategies with Risk Sensitive Control
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