Diverse market models of competing Brownian particles with splits and mergers
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Publication:303944
DOI10.1214/15-AAP1118zbMATH Open1347.91229arXiv1404.0748OpenAlexW3098606361MaRDI QIDQ303944FDOQ303944
Authors: Ioannis Karatzas, Andrey Sarantsev 
Publication date: 23 August 2016
Published in: The Annals of Applied Probability (Search for Journal in Brave)
Abstract: We study models of regulatory breakup, in the spirit of Strong and Fouque [Ann. Finance 7 (2011) 349-374] but with a fluctuating number of companies. An important class of market models is based on systems of competing Brownian particles: each company has a capitalization whose logarithm behaves as a Brownian motion with drift and diffusion coefficients depending on its current rank. We study such models with a fluctuating number of companies: If at some moment the share of the total market capitalization of a company reaches a fixed level, then the company is split into two parts of random size. Companies are also allowed to merge, when an exponential clock rings. We find conditions under which this system is nonexplosive (i.e., the number of companies remains finite at all times) and diverse, yet does not admit arbitrage opportunities.
Full work available at URL: https://arxiv.org/abs/1404.0748
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Diffusion processes (60J60) Interacting random processes; statistical mechanics type models; percolation theory (60K35) Portfolio theory (91G10) Brownian motion (60J65)
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