On a class of diverse market models

DOI10.1007/S10436-013-0245-2zbMATH Open1298.91150arXiv1301.5941OpenAlexW2047426965MaRDI QIDQ470733FDOQ470733

Authors: Andrey Sarantsev 

Publication date: 13 November 2014

Published in: Annals of Finance (Search for Journal in Brave)

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.

Full work available at URL: https://arxiv.org/abs/1301.5941

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zbMATH Keywords

arbitrage opportunitystochastic portfolio theorydiverse marketsFeller's test

Mathematics Subject Classification ID

Portfolio theory (91G10) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Applications of stochastic analysis (to PDEs, etc.) (60H30) Microeconomic theory (price theory and economic markets) (91B24)

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Cited In (14)

• Diversity and no arbitrage
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• A flexible model for tree-structured multi-commodity markets
• Alternative models for markets with nonconvexities
• Diverse market models of competing Brownian particles with splits and mergers
• Capital distribution and portfolio performance in the mean-field Atlas model
• Diversity and arbitrage in a regulatory breakup model
• A forecasting model for stock market diversity
• Balance, growth and diversity of financial markets
• Penalty method for obliquely reflected diffusions
• Open markets
• Diversity-weighted portfolios with negative parameter
• Diversity and relative arbitrage in equity markets
• On exploitation in a class of differentiable mixed markets

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