Entropy-Maximizing Dynamics of Continuous Markets
General Mathematics
2024-03-18 v1
Abstract
By assuming the existence of the growth optimal portfolio (GOP), the stationarity of GOP-volatilities, and the maximization of relative entropy, the paper applies the benchmark approach to the modeling of the long-term dynamics of continuous markets. It reveals conservation laws, where the GOP is shown to follow a time-transformed squared Bessel process of dimension four. Moreover, it predicts the convergence of the averages of the GOP-volatilities with respect to the driving independent Brownian motions toward a common level.
Keywords
Cite
@article{arxiv.2403.09652,
title = {Entropy-Maximizing Dynamics of Continuous Markets},
author = {Eckhard Platen},
journal= {arXiv preprint arXiv:2403.09652},
year = {2024}
}