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This reference appears lots of places:
Kelly, John. L. Jr., "A New Interpretation of Information Rate", Bell
System Technical Journal, 35, No. 4 (July 1956), pp. 917 - 926
Interesting side notes:
1. Kelly was a colleague of Claude Shannon, who invented/discovered
information theory at Bell Labs. Shannon is the inventor of the term
"bit' for binary digit and also devised the basic structure used by
computer programs that play chess. Shannon is reputed to have made a
fortune trading, but I've never seen any description of what his methods
were. One can only assume that it involved the Kelly principle in some
way, information theory and possibly the work of the other founder of
information theory, Norbert Wiener.
2. The Kelly principle was firmly established by the professional
blackjack players that sprang up after Edward Thorp of "Beat the Dealer"
and others discovered that there was a way for blackjack players to have
the edge over a casino in some circumstances. This happened in the late
1950s - early 1960s; it was old news when I moved to Las Vegas in 1965.
Thorp went on to develop a system for trading warrants, which are
similar to options. The book is "Beat the Market" by Edward O. Thorp and
Sheen Kassouf, 1967, Random House. Thorp managed a hedge fund for a
while; he was probably the first "rocket scientist".
3. A very good book on all of this is Richard Epstein's "The Theory of
Gambling and Statistical Logic". The hardbound edition is out of print
but the paperback version is available at Amazon for a very reasonable
price. See
http://www.teleport.com/~znmeb/biblio.htm#[Epstein77]
--
M. Edward Borasky znmeb@xxxxxxxxxxxx http://www.teleport.com/~znmeb
If God had meant carrots to be eaten cooked, He would have given rabbits
fire.
-----Original Message-----
From: Walt Downs <knight@xxxxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: Saturday, January 09, 1999 10:16
Subject: Trading GEN: Info on Kelly Principle
>Hi all,
>
>A few month's back some RT's were discussing the basics of the
>"Kelly Principle", a form of statistical adjustment that might
>have value in relation to trade size.
>
>I am interested in the original source of this principle. I.e.,
>the full name of the author and what book this principal is
>discussed in.
>
>Thanks,
>Walt Downs
>CIS Trading
>
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