Related papers: Entropy and Uncertainty Analysis in Financial Mark…
Entropy based ideas find wide-ranging applications in finance for calibrating models of portfolio risk as well as options pricing. The abstracted problem, extensively studied in the literature, corresponds to finding a probability measure…
Entropy is the measure of uncertainty in any data and is adopted for maximisation of mutual information in many remote sensing operations. The availability of wide entropy variations motivated us for an investigation over the suitability…
The concept of Entropy plays a key role in Information Theory, Statistics, and Machine Learning.This paper introduces a new entropy measure, called the t-entropy, which exploits the concavity of the inverse-tan function. We analytically…
In many areas of engineering and sciences, decision rules and control strategies are usually designed based on nominal values of relevant system parameters. To ensure that a control strategy or decision rule will work properly when the…
The integration and innovation of finance and technology have gradually transformed the financial system into a complex one. Analyses of the causesd of abnormal fluctuations in the financial market to extract early warning indicators…
We introduce the concept of virtual volatility. This simple but new measure shows how to quantify the uncertainty in the forecast of the drift component of a random walk. The virtual volatility also is a useful tool in understanding the…
Entropy measures have become increasingly popular as an evaluation metric for complexity in the analysis of time series data, especially in physiology and medicine. Entropy measures the rate of information gain, or degree of regularity in a…
Entropy is a very useful concept from physics that tries to explain how a system behaves from a point of view of the thermodynamics. However, there are two ways to explain entropy, and it depends on if we are studying a microsystem or a…
We review the recently introduced concept of variety of a financial portfolio and we sketch its importance for risk control purposes. The empirical behaviour of variety, correlation, exceedance correlation and asymmetry of the probability…
Norms of Persistent Homology introduced in topological data analysis are seen as indicators of system instability, analogous to the changing predictability that is captured in financial market uncertainty indexes. This paper demonstrates…
The time variation of entropy, as an alternative to the variance, is proposed as a measure of the diffusion rate. It is shown that for linear and time-translationally invariant systems having a large-time limit for the density, at large…
Risk measures for multivariate financial positions are studied in a utility-based framework. Under a certain incomplete preference relation, shortfall and divergence risk measures are defined as the optimal values of specific set…
In this paper we aim to find a measure for the diversity of cash flows between agents in an economy. We argue that cash flows can be linked to probabilities of finding a currency unit in a given cash flow. We then use the information…
Accounting for the non-normality of asset returns remains challenging in robust portfolio optimization. In this article, we tackle this problem by assessing the risk of the portfolio through the "amount of randomness" conveyed by its…
The discrepancy between realized volatility and the market's view of volatility has been known to predict individual equity options at the monthly horizon. It is not clear how this predictability depends on a forecast's ability to predict…
We review the nature of some well-known phenomena such as volatility smiles, convexity adjustments and parallel derivative markets. We propose that the market is incomplete and postulate the existence of intrinsic risks in every contingent…
Classical mean-variance portfolio theory tells us how to construct a portfolio of assets which has the greatest expected return for a given level of return volatility. Utility theory then allows an investor to choose the point along this…
Model uncertainty has been one prominent issue both in the theory of risk measures and in practice such as financial risk management and regulation. Motivated by this observation, in this paper, we take a new perspective to describe the…
For a random variable we can define a variational relationship with practical physical meaning as dI=dbar(x)-bar(dx), where I is called as uncertainty measurement. With the help of a generalized definition of expectation,…
Economic Policy Uncertainty (EPU) represents the uncertainty realized by the investors during economic policy alterations. EPU is a critical indicator in economic studies to predict future investments, the unemployment rate, and recessions.…