Kelly Criterion Case Study

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The Kelly Criterion or sometimes called a Kelly bet is a formula used to decide the optimal sized stake of the bank to bet on a certain outcome. The way the Kelly Criterion works is that if one believes to have an edge over the bookmakers odds for a certain outcome one applies the kelly formula to calculate how much of their bank to stake and then do this for a series of bets resulting in a profit. Many argue the Kelly strategy is the strongest strategy among all betting strategies in the long term. The Kelly Criterion was designed in 1956 cite{kelly}, originally used to bet on an event where the probability of the winning and losing are the same and could be repeated again and again like a biased coin toss. Similar to the Kelly criterion, …show more content…

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subsection{Fractional Kelly Criterion}

Caution must be taken when dealing with the Kelly criterion because it is easy to misjudge the edge possessed over the bookmaker. Misjudging an edge could be costly and potentially cost the entire bank. It is common not to use the suggested stake sizing produced from the Kelly Criterion as people want to reduce risk and also they take into consideration that the edge they have calculated may have been overestimated. vspace{12pt}

Fractional Kelly Criterion is using the conventional Kelly Criterion to calculate the sizing of stakes, but just taking a fraction of the percentage of your bank calculated. One can use any fraction as it depends on personal preference. Using the Fractional Kelly Criterion will provide profit slower than the standard Kelly Criterion but reduces the risking or losing money from the bank.vspace{12pt}

section{Poisson Distribution}

The Poisson distribution will be used in the next section when predicting results and considering the goal expectancies for both the home and away teams. The Poisson distribution is a discrete probability distribution that counts the number of occurrences of an event within a time interval. It was named after Siméon Denis the french …show more content…

Remember, even if the bookmakers can be out-performed, the bookmakers margin must be taken into consideration.vspace{12pt}

Probabilities will be forecasted for the outcomes of football matches from the English Premier League for the current season, 2015-2016. 83 matches will be used over a nine game week period from February 2nd to the 3rd of April. An algorithm constructed shall be applied to the matches to produce the forecasts. vspace{12pt}

The Brier scores and Logarithmic scores will be calculated for the gathered predictions, to assess how accurate the forecasts are, also comparing the difference between the two scoring rules. Additionally, Kelly bets will be applied to the predictions to decide how much should be bet on an outcome or whether it is favourable to not bet at all.vspace{12pt}

Firstly decided were the different factors to consider when calculating odds for football matches. vspace{12pt}

egin{itemize} item Home Team Goal

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