L1
Kelly Criterion
Junior Quant · Brainteasers & Logic
Payoff = $2 net win on heads, lose stake on tails · find f that maximises long-run growth
Question
You are offered a bet: pay $1 to win $2 if a fair coin lands heads. You start with $10. Using the Kelly criterion, what fraction of your wealth should you bet per round to maximise long-run growth rate? Derive the criterion from first principles.