Three Issues on the Kelly Criterion with Engineering Investment Projects

Abstract

This paper is concerned with three issues associated with the applicability of the Kelly criterion to engineering investment projects instead of financial investment ones. It is believed that the criterion involves a high potential of being applied to the economic analysis of the engineering investment projects. From this perspective, this paper addresses three relevant issues: i) a violation of an existing popular stochastic dominance theorem, ii) the Kelly criterion with a time value of money, and iii) its optionality with a binomial lattice option pricing model. The presentation regarding the issues is primarily relied on as part of the author’s research work, with the aid of previously existing literature.