SPDE limit of the global fluctuations in rank-based models

DOI10.1214/17-AOP1200MaRDI QIDQ1746148zbMATH OpenFDO

Authors Praveen Kolli, Mykhaylo Shkolnikov

Publication date 24 April 2018

Published in The Annals of Probability (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1608.00814, https://projecteuclid.org/euclid.aop/1520586275

zbMATH Keywords

Gaussian random fieldsstochastic partial differential equationsporous medium equationcentral limit theoremsmean field interactionstochastic portfolio theoryWasserstein distancesfluctuations in interacting particle systemslarge equity marketsquantitative propagation of chaos estimatesrank-based models

Mathematics Subject Classification ID

Stochastic partial differential equations (aspects of stochastic analysis) (60H15) Interacting particle systems in time-dependent statistical mechanics (82C22) Financial applications of other theories (91G80)

Abstract: We consider systems of diffusion processes ("particles") interacting through their ranks (also referred to as "rank-based models" in the mathematical finance literature). We show that, as the number of particles becomes large, the process of fluctuations of the empirical cumulative distribution functions converges to the solution of a linear parabolic SPDE with additive noise. The coefficients in the limiting SPDE are determined by the hydrodynamic limit of the particle system which, in turn, can be described by the porous medium PDE. The result opens the door to a thorough investigation of large equity markets and investment therein. In the course of the proof we also derive quantitative propagation of chaos estimates for the particle system.

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Cited in

(13)

• Large rank-based models with common noise
• Propagation of chaos for maxima of particle systems with mean-field drift interaction
• Weak and strong error analysis for mean-field rank-based particle approximations of one-dimensional viscous scalar conservation laws
• Equilibrium large deviations for mean-field systems with translation invariance
• Degenerate competing three-particle systems
• The small noise limit of order-based diffusion processes
• A note on transportation cost inequalities for diffusions with reflections
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• Convergence rates for rank-based models with applications to portfolio theory
• Long time behaviour and mean-field limit of Atlas models
• Large volatility-stabilized markets
• Large systems of diffusions interacting through their ranks

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