Diverse market models of competing Brownian particles with splits and mergers
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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.
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- A phase transition behavior for Brownian motions interacting through their ranks
- A second-order stock market model
- Arbitrage opportunities in diverse markets via a non-equivalent measure change
- Atlas models of equity markets
- Balance, growth and diversity of financial markets
- Competing particle systems evolving by interacting Lévy processes
- Concentration of measure for Brownian particle systems interacting through their ranks
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- Convergence rates for rank-based models with applications to portfolio theory
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- On collisions of Brownian particles
- One-dimensional Brownian particle systems with rank-dependent drifts
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- Stochastic Portfolio Theory: an Overview
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- Systems of Brownian particles with asymmetric collisions
- Triple and simultaneous collisions of competing Brownian particles
- Two Brownian particles with rank-based characteristics and skew-elastic collisions
- Uniqueness for diffusions with piecewise constant coefficients
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