Information-Theoretic Approach to Financial Market Modeling

Platen, E

Information-Theoretic Approach to Financial Market Modeling

Platen, E

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Publisher:: WILEY
Publication Type:: Journal Article
Citation:: Mathematical Finance, 2026
Issue Date:: 2026-01-01

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Field	Value	Language
dc.contributor.author	Platen, E https://orcid.org/0000-0003-4595-3123
dc.date.accessioned	2026-10-09T03:00:04Z
dc.date.available	2026-10-09T03:00:04Z
dc.date.issued	2026-01-01
dc.identifier.citation	Mathematical Finance, 2026
dc.identifier.issn	0960-1627
dc.identifier.issn	1467-9965
dc.identifier.uri	http://hdl.handle.net/10453/196919
dc.description.abstract	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 maximizes the surprisal of the market and minimizes 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.
dc.language	English
dc.publisher	WILEY
dc.relation.ispartof	Mathematical Finance
dc.relation.isbasedon	10.1111/mafi.70049
dc.rights	info:eu-repo/semantics/openAccess
dc.subject	0102 Applied Mathematics, 1502 Banking, Finance and Investment
dc.subject.classification	Finance
dc.subject.classification	3502 Banking, finance and investment
dc.subject.classification	4901 Applied mathematics
dc.title	Information-Theoretic Approach to Financial Market Modeling
dc.type	Journal Article
utslib.for	0102 Applied Mathematics
utslib.for	1502 Banking, Finance and Investment
pubs.organisational-group	University of Technology Sydney
pubs.organisational-group	University of Technology Sydney/Faculty of Science
pubs.organisational-group	University of Technology Sydney/Faculty of Science/School of Mathematical and Physical Sciences
utslib.copyright.status	open_access	*
dc.rights.license	This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY-NC-ND 4.0). To view a copy of this license, visit https://creativecommons.org/licenses/by-nc-nd/4.0/
dc.date.updated	2026-10-09T03:00:02Z
pubs.publication-status	Published

Abstract:

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 maximizes the surprisal of the market and minimizes 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.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/196919