Analysis of market weights under volatility-stabilized market models
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stochastic differential equationdiffusion processWright-Fisher diffusionFleming-Viot diffusionBessel-square processmarket weightsvolatility-stabilized market model
Applications of Brownian motions and diffusion theory (population genetics, absorption problems, etc.) (60J70) Diffusion processes (60J60) Auctions, bargaining, bidding and selling, and other market models (91B26) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Transition functions, generators and resolvents (60J35)
Abstract: We derive the joint density of market weights, at fixed times and suitable stopping times, of the volatility-stabilized market models introduced by Fernholz and Karatzas in [Ann. Finan. 1 (2005) 149-177]. The argument rests on computing the exit density of a collection of independent Bessel-square processes of possibly different dimensions from the unit simplex. We show that the law of the market weights is the same as that of the multi-allele Wright-Fisher diffusion model, well known in population genetics. Thus, as a side result, we furnish a novel proof of the transition density function of the Wright-Fisher model which was originally derived by Griffiths by bi-orthogonal series expansion.
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Cited in
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- Optimal arbitrage under model uncertainty
- Diffusions on a space of interval partitions: the two-parameter model
- Ranked masses in two-parameter Fleming–Viot diffusions
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- A note on jump Atlas models
- Capital distribution and portfolio performance in the mean-field Atlas model
- On a class of diverse market models
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- Functional portfolio optimization in stochastic portfolio theory
- Generalized volatility-stabilized processes
- Analytic semigroups and some degenerate evolution equations defined on domains with corners
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- Wright-Fisher diffusion with negative mutation rates
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