Relative arbitrage: Sharp time horizons and motion by curvature

DOI10.1111/MAFI.12303MaRDI QIDQ6054367zbMATH OpenOpenAlexFDO

Authors Martin Larsson, Johannes Ruf

Publication date 28 September 2023

Published in Mathematical Finance (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://arxiv.org/abs/2003.13601, http://eprints.lse.ac.uk/108546/2/mafi.12303.pdf

zbMATH Keywords

arbitragegeometric flowstochastic controlstochastic portfolio theory

Mathematics Subject Classification ID

Portfolio theory (91G10) Optimal stochastic control (93E20)

Abstract: We characterize the minimal time horizon over which any equity market with $dgeq2$ stocks and sufficient intrinsic volatility admits relative arbitrage with respect to the market portfolio. If $din2,3$, the minimal time horizon can be computed explicitly, its value being zero if $d=2$ and $sqrt3/(2pi)$ if $d=3$. If $dgeq4$, the minimal time horizon can be characterized via the arrival time function of a geometric flow of the unit simplex in $mathbb{R}^d$ that we call the minimum curvature flow.

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Cited in

(6)

• Optimal control of martingales in a radially symmetric environment
• The geometry of relative arbitrage
• SDEs with no strong solution arising from a problem of stochastic control
• Minimum curvature flow and martingale exit times
• A regularized Kellerer theorem in arbitrary dimension
• Ergodic robust maximisation of asymptotic growth with stochastic factor processes

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