One question that I would have is … are you thinking that this applies to native apps or are you thinking that this applies to Android apps running in Anbox?
I refer you to paragraph 6 in Hardware Switches for GPS, Speakers, and Gyro , which I wrote recently.
Your three suggestions for how GPS information is reported to an app are all reasonable - and more advanced than the more obvious: 1. outright denial of access 2. simple falsification
Jitter might be tricky because GPS itself is not 100% accurate.
Also note that if you intend to run untrusted apps on your phone then apps may use WiFi scanning (or even Bluetooth scanning) to provide supplementary / refining / verifying information to go with the GPS information. In other words, for example, if you are going to do simple falsification with the GPS, you must ensure that WiFi does not give the lie to your GPS info.
I would suggest - never run untrusted native apps on your phone and hence whatever GPS fun and games you want to play can be implemented in Anbox and not need to be operating system functionality.
I take your point that if you want to use location aliasing for your own benefit (e.g. see what Augmented Reality would say if you were at location X) then you may need control over GPS reporting at the operating system level.