Relative Arbitrage: Sharp Time Horizons and Motion by Curvature (2003.13601v2)

Abstract: We characterize the minimal time horizon over which any equity market with $d \geq 2$ stocks and sufficient intrinsic volatility admits relative arbitrage with respect to the market portfolio. If $d \in {2,3}$, the minimal time horizon can be computed explicitly, its value being zero if $d=2$ and $\sqrt{3}/(2\pi)$ if $d=3$. If $d \geq 4$, the minimal time horizon can be characterized via the arrival time function of a geometric flow of the unit simplex in $\mathbb R^d$ that we call the minimum curvature flow.