Readings and resources

Read first (in this order)

1. Thorp, E. O. (2006). "The Kelly criterion in blackjack, sports betting, and the stock market." In Zenios & Ziemba (eds.), Handbook of Asset and Liability Management, Vol. 1, ch. 9, Elsevier. https://doi.org/10.1016/S1872-0978(06)01009-X. A free copy is hosted by Harvard at https://www.eecs.harvard.edu/cs286r/courses/fall12/papers/Thorpe_KellyCriterion2007.pdf. Sections on the binary case, continuous approximation and fractional Kelly match 3.2–3.4.
2. MacLean, L. C., Thorp, E. O. & Ziemba, W. T. (2010). "Long-term capital growth: the good and bad properties of the Kelly and fractional Kelly capital growth criteria." Quantitative Finance 10(7):681–687. https://www.stat.berkeley.edu/~aldous/157/Papers/Good_Bad_Kelly.pdf
3. Feller, W. An Introduction to Probability Theory and Its Applications, Vol. I (3rd ed., Wiley, 1968), ch. XIV ("Random walk and ruin problems"), 1–3. The classical treatment of 3.6.
4. Tharp, V. K. Trade Your Way to Financial Freedom (2nd ed., McGraw-Hill, 2006): chapters on expectancy and position sizing. Read for the R-multiple vocabulary; ignore claims not backed by data.

Papers for depth

• Kelly, J. L., Jr. (1956). "A new interpretation of information rate." Bell System Technical Journal 35(4):917–926. https://doi.org/10.1002/j.1538-7305.1956.tb03809.x
• Breiman, L. (1961). "Optimal gambling systems for favorable games." Proceedings of the Fourth Berkeley Symposium on Mathematical Statistics and Probability, Vol. 1, 65–78.
• Magdon-Ismail, M., Atiya, A. F., Pratap, A. & Abu-Mostafa, Y. S. (2004). "On the maximum drawdown of a Brownian motion." Journal of Applied Probability 41(1):147–161.
• Long, J. B. (1990). "The numeraire portfolio." Journal of Financial Economics 26(1):29–69.
• Dubins, L. E. & Savage, L. J. (1965). How to Gamble If You Must. McGraw-Hill. (Bold play in subfair games.)
• MacLean, Thorp & Ziemba (eds.) (2011). The Kelly Capital Growth Investment Criterion: Theory and Practice. World Scientific. Reference collection.

Case-study sources

• President's Working Group on Financial Markets (1999). Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management. https://home.treasury.gov/system/files/236/hedgfund.pdf
• Federal Reserve History, "Near Failure of Long-Term Capital Management": https://www.federalreservehistory.org/essays/ltcm-near-failure
• Lowenstein, R. (2000). When Genius Failed. Random House. (Narrative history of LTCM.)
• SEC press release 2022-70, charges against Archegos and Bill Hwang: https://www.sec.gov/news/press-release/2022-70
• Thorp, E. O. (2017). A Man for All Markets. Random House. (Autobiography; blackjack and Princeton–Newport.)
• SEBI studies of individual F&O traders: press releases of 23 Sep 2024 and 20 Aug 2026 (links in 3.10.4).

Lectures and videos

• MIT 18.S096 (Fall 2013), Lecture 5 "Stochastic Processes I" (random walks, martingales, optional stopping): https://ocw.mit.edu/courses/18-s096-topics-in-mathematics-with-applications-in-finance-fall-2013/video_galleries/video-lectures/
• Ed Thorp, interview on The Investor's Podcast (TIP 128): https://www.youtube.com/watch?v=5ydHAJxOXPo (content not reviewed for this module).

Indian sources

• Current STT and exchange charges used in 3.1: NSE circulars NSE/FATAX/73524 (STT, 31 Mar 2026), https://nsearchives.nseindia.com/content/circulars/FATAX73524.pdf , and NSE/FA/73061 (transaction charges, 27 Feb 2026), https://nsearchives.nseindia.com/content/circulars/FA73061.pdf ; M01 · 1.7 sets out the full charge stack.

Code for this module Exercises m03_kelly (3.2–3.5), m03_ruin (3.6–3.8) and m03_sizing (3.1, 3.9); in the app: Exercises → m03_kelly, and so on. From a terminal: cd exercises && .venv/bin/python -m pytest modules/M03-betting-kelly-ruin/tests.