Information-minimizing stationary financial market dynamics
Mathematical Finance
2025-07-25 v1
Abstract
The paper derives the dynamics of a financial market from basic mathematical principles. It models the market dynamics using independent stationary scalar diffusions, assumes the existence of its growth optimal portfolio (GOP), interprets the market as a communication system, and minimizes, in an information-theoretical sense, the joint information of the risk-neutral pricing measure with respect to the real-world probability measure. In this information-minimizing market, its basic independent securities, their sums, minimum variance portfolio, and GOP, as well as the GOP of the entire market, represent squared radial Ornstein-Uhlenbeck processes with additivity and self-similarity properties.
Keywords
Cite
@article{arxiv.2507.18395,
title = {Information-minimizing stationary financial market dynamics},
author = {Eckhard Platen},
journal= {arXiv preprint arXiv:2507.18395},
year = {2025}
}