Algorithms for optimal allocation of bets on many simultaneous events

Author: Whitrow, Chris

Source: Journal of the Royal Statistical Society: Series C (Applied Statistics), Volume 56, Number 5, November 2007 , pp. 607-623(17)

Publisher: Wiley-Blackwell

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Abstract:

Summary.

The problem of optimizing a number of simultaneous bets is considered, using primarily log-utility. Stochastic gradient-based algorithms for solving this problem are developed and compared with the simplex method. The solutions may be regarded as a generalization of `Kelly staking' to the case of many simultaneous bets. Properties of the solutions are examined in two example cases using real odds from sports bookmakers. The algorithms that are developed also have wide applicability beyond sports betting and may be extended to general portfolio optimization problems, with any reasonable utility function.

Keywords: Gambling; Kelly staking; Log-utility; Portfolio optimization; Sports betting; Stochastic gradient ascent

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1467-9876.2007.00594.x

Affiliations: 1: Imperial College London, UK

Publication date: 2007-11-01