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Bet sizing using risk-of-ruin indicator

The Kelly Criterion, which we covered in a previous article, estimates what fraction of risk capital to use for a particular bet in order to maximise the long-term wealth expectation. We know also that it does not consider the risk to be financially wiped out along the way. This is why risk-of-ruin is an indicator that so greatly complements it. In this article, we will present a numerical method to calculate it and run through examples on how it can be used to conservatively size bets.

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