Dynamics of observables in rank-based models and performance of functionally generated portfolios

Sergio A. Almada Monter, Mykhaylo Shkolnikov, Jiacheng Zhang

Research output: Contribution to journalArticle

Abstract

In the seminal work (Stochastic Portfolio Theory: Stochastic Modelling and Applied Probability (2002) Springer), several macroscopic market observables have been introduced, in an attempt to find characteristics capturing the diversity of a financial market. Despite the crucial importance of such observables for investment decisions, a concise mathematical description of their dynamics has been missing. We fill this gap in the setting of rank-based models. The results are then used to study the performance of multiplicatively and additively functionally generated portfolios.

Original languageEnglish (US)
Pages (from-to)2849-2883
Number of pages35
JournalAnnals of Applied Probability
Volume29
Issue number5
DOIs
StatePublished - Jan 1 2019

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Statistics, Probability and Uncertainty

Keywords

  • Capital distribution
  • Functionally generated portfolios
  • Gaussian fluctuations
  • Hitting times
  • Hydrodynamic limits
  • Macroscopic market observables
  • Market diversity
  • Market entropy
  • Porous medium equation
  • Rank-based models
  • Relative return
  • Stochastic partial differential equations
  • Stochastic portfolio theory

Fingerprint Dive into the research topics of 'Dynamics of observables in rank-based models and performance of functionally generated portfolios'. Together they form a unique fingerprint.

  • Cite this