The Kelly System
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Introduction
The Kelly system is a betting system. It can be used for gambling or
investing. If you are unfamiliar with the Kelly system you can look
at this short introduction.
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Book
For a more detailed introduction to the Kelly system that includes
mathematical derivations and algorithms for calculating the Kelly fraction,
see our book Bet Smart: The Kelly System for
Gambling and Investing.
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Calculators
Below is a list of calculators that can be used to calculate the Kelly
fraction and run simulations using the Kelly system. Note that these
calculators and simulators are for educational purposes only and should not be
relied upon for making investment decisions.
- Coin Toss Calculator - this is
for the simplest case where you have only two possible outcomes.
- Single Bet Calculator - this is
for the more general case of a single bet with any number of possible outcomes.
- Two Bet Calculator - this is
for the case of two independent bets, each with any number of possible outcomes.
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Applications
The Kelly system can also be applied in ways that go beyond being a simple
money management system. One interesting application is to use it to calculate
bond default probabilities. See our: Bond Default Probability
Calculator.
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Software
Below is some free open source software that can be used to calculate
Kelly fractions and run simulations. If you are looking for some Kelly
application software not covered you can contact Stefan Hollos (stefan
at exstrom dot com).
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kelly.py contains functions for
calculating Kelly fractions for a single bet and two independent
bets. The functions are written in the
Python programming language. The
single bet fraction is calculated with kfsingle(rv, pv) and the two
bet fraction is calculated with kfidouble(rv1, rv2, pv1, pv2). See the
file for more documentation.
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kelly.ods is a spreadsheet for
calculating the kelly fraction and doing simulations for a coin toss
bet, a single bet or two independent bets. It is
an OpenOffice
spreadsheet. OpenOffice is a free alternative to Micosoft Office that
runs on Windows, Linux, Solaris, and Mac operating systems. The
spreadsheet contains macros which perform some of the
calculations. You may have to change the security level to allow these
macros to run. To change the security level, go to the tools menu and
choose options. In the dialog box choose security under the
OpenOffice.org heading and click on the Macro Security button. Choose
the Medium security level.
