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arXiv · 2610.41603

Worst-Case Relative Growth of Functionally Generated Portfolios under Restricted Market-Weight Dynamics

Jilong Xu·Xiaojun Cui
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Abstract

We study the worst-case relative growth rate of a fixed functionally generated portfolio under restrictions on market-weight dynamics over a compact convex market state space. For a nonempty compact forward shift-invariant path family, the pathwise wealth decomposition identifies the global rate with the minimum invariant average of the one-step $L$-divergence. For paths generated by a compact one-step transition relation, this rate is also the minimum over balanced transition measures, and a minimizing measure can be chosen on one relation basic set. For a fixed initial state, we study the lower limit of the minimum average $L$-divergence over the first $t$ periods as $t\to\infty$. We represent this value using empirical transition laws generated from that state. Their common state marginals are supported on chain-recurrent states that are chain-accessible from the initial state. The lower bound is obtained by minimizing the average $L$-divergence over balanced transition measures on chain-accessible basic sets. Finite exact reachability gives an upper bound. Examples show that both bounds can be strict. We also give a finite exact reachability condition under which the minimum average $L$-divergence over the first $t$ periods converges for paths confined to a basic set.

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Jilong Xu, Xiaojun Cui. 2026-10-30. Worst-Case Relative Growth of Functionally Generated Portfolios under Restricted Market-Weight Dynamics. https://arxiv.org/abs/2610.41603

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