Kelly's formula

How can the Kelly formula be used in sports betting?

The Kelly formula is employed to ascertain the optimal amount to invest in a particular asset or even in the realm of online gambling, with the aim of maximizing returns over time. Keep reading to unveil the inner workings of the formula and whether it is worthwhile to employ it when placing online bets.

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What is Kelly's criterion or formula?

The Kelly criterion or Kelly strategy is a formula employed to ascertain the optimal position for maximizing profits and minimizing losses. This approach relies on a mathematical equation devised to amplify expected returns while mitigating associated risks. It aids in calculating the ideal amount that should be allocated to a wager or financial investment. The Kelly criterion provides a systematic framework for determining the optimal allocation of resources, enabling individuals to make informed decisions and optimize their potential gains.

Also referred to as the Kelly bet, the strategy finds practical applications in investments and games of chance. The concept was first conceived by J.L Kelly, a researcher at Bell Laboratories. Warren Buffett, one of the most accomplished and renowned investors of all time, introduced the Kelly criterion method to the realm of investments.

Step-by-step calculation with examples

Check out these examples to better understand the concept of Kelly.

Stock Trading

Let's imagine a stockbroker seeking to enhance their return efficiency. Let's say they employ the Kelly criterion, and their risk-to-reward ratio in this case is 1:1, meaning they can potentially lose the exact amount they can potentially gain. According to the data, they achieve winning trade setups approximately 55% of the time. The approach would be as follows:

• f=Bp-qB= odds borda ou K = p × B (1 – p) / B f = B(p-q) = borda odds or K = p × B (1 - p) / B
• B = 1
• p = 55% or 0.55
• q = (1-p) = (1-0,55) = 0,45
• 1. = ((1)(.55)) – (.45) / 1
• 2. = 0,55 – 0,45 / 1
• 3. = 0,1/1
• 4. = 0.1 or 10%

In this scenario, the Kelly criterion formula dictates that one should allocate 10% of their portfolio or account for the venture to prosper. This implies that careful consideration should be given to the allocation of resources, ensuring that a significant portion is dedicated to the success of the business.

Sports Betting

Let's say, for instance, that someone is placing a bet on a Copa America match. Let's assume the match is a rematch, with Corinthians playing against Sao Paulo. Corinthians is the favored team to win, with odds of 2:3. The bet costs ZAR 50, but the potential payout is ZAR 100, resulting in a risk of 2:1 for the reward. The formula would be as follows when calculating the odds:

• The odds of Bp-qB reaching the edge.
• B = 2:1 or simply 2
• If she has odds of 2:3, it will be equal to 67% or 0.67.
• q = (1-p) = (1-0,67) = 0,33
• 1. = ((2)(.67)) – (.37) / 2
• 2. = 1,34 – 0,37 / 2
• 3. = 0,97 / 2
• 4. .49 or 49%

According to Kelly's criterion, the player should wager 49% of their bankroll on the bet. This percentage is derived from the notion that they have a greater multiple or reward compared to the risk (2:1). By combining this information with the fact that the player has a 67% chance of winning the trade, the formula computes and proposes a higher value to allocate for the bet.

Interpretation and Review of the Kelly method

When it comes to determining the position of your bets, whether it's for live betting or pre-game wagers, the Kelly Criterion method can be a valuable tool. There are a few key points to bear in mind when utilizing this formula.

Conclusion on the Kelly formula in sports betting.

The formula is employed to ascertain the optimal amount of money to place in a single trade or wager. Numerous renowned investors, such as Warren Buffett and Bill Gross, have previously utilized the formula for their own investment strategies. We trust that this guide will assist you in comprehending how the Kelly criterion can enhance your experience in sports betting websites.

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Frequently asked questions about the Kelly formula.