What is the correct Kelly formula?

[kokky]

I see many versions of Kelly formula on the internet. Some of them say i should bet 10 or 20% of my bankroll, that seems too much. Others never give percentage over 1%, that seems too little.

In some formulas there is some Kelly divider, what is that?

So what is true, or best Kelly formula?

[FourLengthsClear]

Read the notes below this calculator.

http://www.sbrforum.com/betting-tools/kelly-calculator/

[LT Profits]

Or even more simplified, bet to win whatever your edge is, i.e., if you cap a game as having a 3% edge, bet to win 3% of bankroll.

[splash]

If kelly says bet 20%, then that is the optimal amount. Just means your edge must be pretty huge. Don't doubt the equation just cause it tells you to bet a large percentage unless you think that an edge that large isn't possible.

[goblue12]

Betting half Kelly cuts your "Risk of Ruin" from around 13-14% to 1-2%.

[splash]

Betting half Kelly cuts your "Risk of Ruin" from around 13-14% to 1-2%.

Uh no. Your risk of ruin betting full kelly is 0%. This is not factoring in that when your roll gets so low kelly tells you to bet less than one penny.

[FourLengthsClear]

Uh no. Your risk of ruin betting full kelly is 0%. This is not factoring in that when your roll gets so low kelly tells you to bet less than one penny.

If I was to lose 95% of my bankroll, I would consider that as "ruin".

[sharpcat]

I see many versions of Kelly formula on the internet. Some of them say i should bet 10 or 20% of my bankroll, that seems too much. Others never give percentage over 1%, that seems too little.

In some formulas there is some Kelly divider, what is that?

So what is true, or best Kelly formula?

You should stay far away from kelly until you have a much better understanding of it.

[mjespoz]

If you need to ask these sorts of questions then you shouldn't even think of using Kelly.

[slickeddie]

If I was to lose 95% of my bankroll, I would consider that as "ruin".

LMAO.

Not sure I understand the others telling him if he doesn't understand then he shouldn't be using it tho. I'm sure he is asking because he wants to learn more about it.

Wondering myself if I have a baseball RL system that has a record of 797-752, and the average odds were +113, is the Kelly a good thing, and if so, what would my "edge" be?

Thanks for any help.

[FourLengthsClear]

LMAO.

Not sure I understand the others telling him if he doesn't understand then he shouldn't be using it tho. I'm sure he is asking because he wants to learn more about it.

Wondering myself if I have a baseball RL system that has a record of 797-752, and the average odds were +113, is the Kelly a good thing, and if so, what would my "edge" be?

Thanks for any help.

In simple terms, yes. Kelly gives the optimal return compared to the risk of going bust.

That risk of going bust when utilising Kelly is not insignificant and is why some people opt for a fractional approach which still produces better results than flat staking.

In terms of the baseball record, the average edge per game is:

51.45% (winning percentage)
divided by
46.95% (implied winning probability of +113)

= 1.0959
Edge was therefore 9.59%

The next thing you need to establish is the wisdom (or otherwise) of using that going forward!

[slickeddie]

Thanks 4Lengths. How do you come up with the 46.95%? I have other systems and knowing which one has the biggest edge, will help me a ton.

As far as "wisdom" is concerned, I'm shiot outta luck on that one, lol.

[FourLengthsClear]

Thanks 4Lengths. How do you come up with the 46.95%? I have other systems and knowing which one has the biggest edge, will help me a ton.

As far as "wisdom" is concerned, I'm shiot outta luck on that one, lol.

Convert US style odds to the implied win probability as follows:

+ odds e.g. +113
100 divided by (odds + 100)
So +113 is
100/213 = 0.4695 or 46.95%

- odds (e.g. -113)
odds divided by (odds + 100)
So -113 is
113/213 = 0.5305 or 53.05%

[slickeddie]

Great Thanks.

[slickeddie]

One more question if you don't mind. Can we use the "average odds" to get a reasonable edge number?

For example, if I have a RL system that is 1108-843, with the average odds of +104, I have an edge of 15.87 (I think, based on the formula given), but a few of the odds may have been -120 and some could have been +160, etc. Will this variance in odds make a difference in my edge result?

[FourLengthsClear]

One more question if you don't mind. Can we use the "average odds" to get a reasonable edge number?

For example, if I have a RL system that is 1108-843, with the average odds of +104, I have an edge of 15.87 (I think, based on the formula given), but a few of the odds may have been -120 and some could have been +160, etc. Will this variance in odds make a difference in my edge result?

With Kelly the idea is to bet based your edge for a particular matchup and as such using a historical average of any description is not optimal.

With that said, what I would do is to break the overall sample into smaller groups (subsets).
Lets say you subdivide in to odds of +150 and higher, from +120 to +149, etc.

Also split up home teams and away teams (very important in baseball RL betting).

More divisions should be made for anything that is important to how you make your picks.

Of course each of these subsets represents a smaller sample and is therefore more prone to variance but it should nonetheless help you identify where you have been extracting the greatest value.

Some in here would object but I would be comfortable utilising half Kelly on that subsetted and constantly updated data. The more data you have the more you can have confidence in it and the closer you should be to full Kelly.

[splash]

If I was to lose 95% of my bankroll, I would consider that as "ruin".

Which is fine but the guy I quoted gave actual percentages. It doesn't make any sense to say RoR is 13% at full kelly and only 1% at half kelly without defining what parameters and definitions you are using. Since he didn't define "ruin", the absolute sense of the word is assumed.

[Wrecktangle]

A lemming and his money are soon parted.

[WendysRox]

I made a little excel spreadsheet where you input the odds and your win percentage. It give you everything else.

Here: http://www.4shared.com/document/SfYF...el_2003_V.html