Model-free portfolio theory and its functional master formula

DOI10.1137/16M1079828zbMATH Open1416.91363arXiv1606.03325OpenAlexW2963876714WikidataQ129212974 ScholiaQ129212974MaRDI QIDQ4553804FDOQ4553804

Authors: Alexander Schied, Leo Speiser, Iryna Voloshchenko 

Publication date: 31 October 2018

Published in: SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Abstract: We use pathwise It^o calculus to prove two strictly pathwise versions of the master formula in Fernholz' stochastic portfolio theory. Our first version is set within the framework of F"ollmer's pathwise It^o calculus and works for portfolios generated from functions that may depend on the current states of the market portfolio and an additional path of finite variation. The second version is formulated within the functional pathwise It^o calculus of Dupire (2009) and Cont & Fourni'e (2010) and allows for portfolio-generating functionals that may depend additionally on the entire path of the market portfolio. Our results are illustrated by several examples and shown to work on empirical market data.

Full work available at URL: https://arxiv.org/abs/1606.03325

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zbMATH Keywords

portfolio analysismarket portfolioentropy weightingfunctional Itô formulaFöllmer integralfunctional master formula on path spacepathwise Itô calculusportfolio-generating functionals

Mathematics Subject Classification ID

Portfolio theory (91G10) Stochastic integrals (60H05) Applications of stochastic analysis (to PDEs, etc.) (60H30)

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Cited In (15)

• Model‐free portfolio theory: A rough path approach
• Beating the market? A mathematical puzzle for market efficiency
• Trading strategies generated pathwise by functions of market weights
• Leakage of rank-dependent functionally generated trading strategies
• Robust control in a rough environment
• Trading strategies generated by Lyapunov functions
• A càdlàg rough path foundation for robust finance
• Quantifying dimensional change in stochastic portfolio theory
• Itô-Föllmer calculus in Banach spaces. I: The Itô formula
• Pathwise no-arbitrage in a class of delta hedging strategies
• On the $p$th variation of a class of fractal functions
• Time-Inconsistency with Rough Volatility
• Market-to-book ratio in stochastic portfolio theory
• The Impact of Proportional Transaction Costs on Systematically Generated Portfolios
• Generalised Lyapunov Functions and Functionally Generated Trading Strategies

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