October 17, 2015

Francesco Caravelli, Lorenzo Sindoni, Fabio Caccioli, Cozmin Ududec

We consider the problem of finding optimal strategies that maximize the average growth-rate of multiplicative stochastic processes. For a geometric Brownian motion the problem is solved through the so-called Kelly criterion, according to which the optimal growth rate is achieved by investing a constant given fraction of resources at any step of the dynamics. We generalize these finding to the case of dynamical equations with finite carrying capacity, which can find applications in biology, mathematical ecology, and finance. We formulate the problem in terms of a stochastic process with multiplicative noise and a non-linear drift term that is determined by the specific functional form of carrying capacity. We solve the stochastic equation for two classes of carrying capacity functions (power laws and logarithmic), and in both cases compute optimal trajectories of the control parameter. We further test the validity of our analytical results using numerical simulations.

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