2025/11/03 by Karén Grigorian, Karen Grigorian, Robert A. Jarrow +3 · 1 voice
Decision Sciences · Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #Financial Markets and Investment Strategies #Game Theory and Applications #q-fin.MF
paper · pdf · doi:10.48550/arxiv.2511.01486
arxiv published 2025/11/03 · arxiv updated 2025/11/04
We apply the theory of McKean-Vlasov-type SDEs to study several problems related to market efficiency in the context of partial information and partially observable financial markets: (i) convergence of reduced-information market price processes to the true price process under an increasing information flow; (ii) a specific mechanism of shrinking biases under increasing information flows; (iii) optimal aggregation of expert opinions by a trader seeking a positive alpha. All these problems are studied by means of (conditional) McKean-Vlasov-type SDEs, Wasserstein barycenters, KL divergence and relevant tools from convex optimization, optimal control and nonlinear filtering. We supply the theoretical results in (i)-(iii) with concrete simulations demonstrating how the proposed models can be applied in practice to model financial markets under information constraints and the arbitrage-seeking behavior of traders with differential beliefs.