where
- f* is the fraction of the current bankroll to wager;
- b is the net odds received on the wager (that is, odds are usually quoted as “b to 1”)
- p is the probability of winning;
- q is the probability of losing, which is 1 − p.
In probability theory, the Kelly criterion, or Kelly strategy or Kelly formula, or Kelly bet, is a formula used to determine the optimal size of a series of bets. In most gambling scenarios, and some investing scenarios under some simplifying assumptions, the Kelly strategy will do better than any essentially different strategy in the long run.
http://en.wikipedia.org/wiki/Kelly_criterion
Fortune’s Formula, by William Poundstone:
