What is the Kelly Criterion?
The Kelly Criterion is a formula used to determine the optimal size of a series of bets to maximize the logarithm of wealth over time. The formula is:
f* = (bp - q) / b
where:
- f* = fraction of bankroll to wager
- p = probability of winning
- q = probability of losing (1 - p)
- b = odds received on the wager (net, e.g. 1 for even money)