Convergence rates for rank-based models with applications to portfolio theory

By Tomoyuki Ichiba, Soumik Pal, Mykhaylo Shkolnikov. 2011

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We determine rates of convergence of rank-based interacting diffusions and semimartingale reflecting Brownian motions to equilibrium. Bounds on fluctuations of additive functionals are obtained using Transportation Cost-Information inequalities for Markov processes. We work out various applications to the rank-based abstract equity markets used in Stochastic Portfolio Theory. For example, we produce quantitative bounds, including constants, for fluctuations of market weights and occupation times of various ranks for individual coordinates. Another important application is the comparison of performance between symmetric functionally generated portfolios and the market portfolio. This produces estimates of probabilities of “beating the market”.

Subfields: Finance, Mathematical Physics

View Paper: https://www.semanticscholar.org/paper/e04328b194a8ebff358e2a871c3085e1b20d02ec