Convergence rates for rank-based models with applications to portfolio theory

DOI10.1007/S00440-012-0432-5zbMATH Open1274.60291arXiv1108.0384OpenAlexW2056997795MaRDI QIDQ1955832FDOQ1955832

Soumik Pal, Tomoyuki Ichiba, Mykhaylo Shkolnikov

Publication date: 19 June 2013

Published in: Zeitschrift für Wahrscheinlichkeitstheorie und Verwandte Gebiete (Search for Journal in Brave)

Abstract: We determine rates of convergence of rank-based interacting diffusions and semimartingale reflecting Brownian motions to equilibrium. Convergence rate for the total variation metric is derived using Lyapunov functions. Sharp fluctuations of additive functionals are obtained using Transportation Cost-Information inequalities for Markov processes. We work out various applications to the rank-based abstract equity markets used in Stochastic Portfolio Theory. For example, we produce quantitative bounds, including constants, for fluctuations of market weights and occupation times of various ranks for individual coordinates. Another important application is the comparison of performance between symmetric functionally generated portfolios and the market portfolio. This produces estimates of probabilities of "beating the market".

Full work available at URL: https://arxiv.org/abs/1108.0384

zbMATH Keywords

reflecting Brownian motionstochastic portfolio theorymarket weightsRank-based interacting diffusions

Mathematics Subject Classification ID

Interacting random processes; statistical mechanics type models; percolation theory (60K35) Auctions, bargaining, bidding and selling, and other market models (91B26) Portfolio theory (91G10) General theory of stochastic processes (60G07)

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Cited In (26)

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• Information Geometry in Portfolio Theory

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