Information-Theoretic Approach to Financial Market Modelling
Fuente:
arXiv
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| Format: | Preprint |
| Published: |
2026
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| _version_ | 1866912907009196032 |
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| author | Platen, Eckhard |
| author_facet | Platen, Eckhard |
| contents | The paper treats the financial market as a communication system, using four information-theoretic assumptions to derive an idealized model with only one parameter. State variables are scalar stationary diffusions. The model minimizes the surprisal of the market and the Kullback-Leibler divergence between the benchmark-neutral pricing measure and the real-world probability measure. The state variables, their sums, and the growth optimal portfolio of the stocks evolve as squared radial Ornstein-Uhlenbeck processes in respective activity times. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2602_14575 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Information-Theoretic Approach to Financial Market Modelling Platen, Eckhard Mathematical Finance Information Theory 62P05, 60G35, 62P20 The paper treats the financial market as a communication system, using four information-theoretic assumptions to derive an idealized model with only one parameter. State variables are scalar stationary diffusions. The model minimizes the surprisal of the market and the Kullback-Leibler divergence between the benchmark-neutral pricing measure and the real-world probability measure. The state variables, their sums, and the growth optimal portfolio of the stocks evolve as squared radial Ornstein-Uhlenbeck processes in respective activity times. |
| title | Information-Theoretic Approach to Financial Market Modelling |
| topic | Mathematical Finance Information Theory 62P05, 60G35, 62P20 |
| url | https://arxiv.org/abs/2602.14575 |