Information-minimizing stationary financial market dynamics
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arXiv
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| Format: | Preprint |
| Published: |
2025
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| _version_ | 1866911074883731456 |
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| author | Platen, Eckhard |
| author_facet | Platen, Eckhard |
| contents | 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. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2507_18395 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Information-minimizing stationary financial market dynamics Platen, Eckhard Mathematical Finance 62P05, 60G35, 62P20 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. |
| title | Information-minimizing stationary financial market dynamics |
| topic | Mathematical Finance 62P05, 60G35, 62P20 |
| url | https://arxiv.org/abs/2507.18395 |