On a class of diverse market models
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Publication:470733
DOI10.1007/S10436-013-0245-2zbMATH Open1298.91150OpenAlexW2047426965MaRDI QIDQ470733FDOQ470733
Abstract: A market model in Stochastic Portfolio Theory is a finite system of strictly positive stochastic processes. Each process represents the capitalization of a certain stock. If at any time no stock dominates almost the entire market, which means that its share of total market capitalization is not very close to one, then the market is called diverse. There are several ways to outperform diverse markets and get an arbitrage opportunity, and this makes these markets interesting. A feature of real-world markets is that stocks with smaller capitalizations have larger drift coefficients. Some models, like the Volatility-Stabilized Model, try to capture this property, but they are not diverse. In an attempt to combine this feature with diversity, we construct a new class of market models. We find simple, easy-to-test sufficient conditions for them to be diverse and other sufficient conditions for them not to be diverse.
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