A Gentle Introduction to Stochastic Portfolio Theory (and its Inverse)

Microprediction
10 min readJul 22, 2023

I made a brief comment about Stochastic Portfolio Theory that sparked some interest and a post or two by Alberto Bueno-Guerrero recently. Few, it would seem, are aware of this body of work so this article comprises:

  1. A short teaser for stochastic portfolio theory

And for fun:

2. An illustration of what we might call inverse stochastic portfolio theory, which is where we take a heuristic portfolio construction technique and show that it would arise as the result…

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