Related papers: Energy, entropy, and arbitrage
We investigate entropy as a financial risk measure. Entropy explains the equity premium of securities and portfolios in a simpler way and, at the same time, with higher explanatory power than the beta parameter of the capital asset pricing…
In stochastic portfolio theory, a relative arbitrage is an equity portfolio which is guaranteed to outperform a benchmark portfolio over a finite horizon. When the market is diverse and sufficiently volatile, and the benchmark is the market…
Consider an equity market with $n$ stocks. The vector of proportions of the total market capitalizations that belong to each stock is called the market weight. The market weight defines the market portfolio which is a buy-and-hold portfolio…
The energy market, and specifically the renewable sector carries volatility and risks, similar to the financial market. Here, we leverage on a well-established, return-risk approach, commonly used by equity portfolio-managers and apply it…
Portfolio managers often evaluate performance relative to benchmark, usually taken to be the Standard & Poor 500 stock index fund. This relative portfolio wealth is defined as the absolute portfolio wealth divided by wealth from investing…
Energy markets are strategic to governments and economic development. Several commodities compete as substitutable energy sources and energy diversifiers. Such competition reduces the energy vulnerability of countries as well as portfolios'…
We study the problem of optimal long term portfolio selection with a view to beat a benchmark. Two kinds of objectives are considered. One concerns the probability of outperforming the benchmark and seeks either to minimise the decay rate…
Despite half a century of research, there is still no general agreement about the optimal approach to build a robust multi-period portfolio. We address this question by proposing the detrended cluster entropy approach to estimate the…
We consider a multi-stock continuous time incomplete market model with random coefficients. We study the investment problem in the class of strategies which do not use direct observations of the appreciation rates of the stocks, but rather…
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…
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…
We briefly review the approach to optimization of portfolios according to the theory of Markowitz and propose a further modification that can improve the outcome of the optimization process. The modification takes account of the entropic…
Selecting stock portfolios and assessing their relative volatility risk compared to the market as a whole, market indices, or other portfolios is of great importance to professional fund managers and individual investors alike. Our research…
In terms of transfer entropy, we investigated the strength and the direction of information transfer in the US stock market. Through the directionality of the information transfer, the more influential company between the correlated ones…
We investigate the relative information efficiency of financial markets by measuring the entropy of the time series of high frequency data. Our tool to measure efficiency is the Shannon entropy, applied to 2-symbol and 3-symbol…
On the basis of the balance equations for energy-momentum, spin, particle and entropy density, an approach is considered which represents a comparatively general framework for special- and general-relativistic continuum thermodynamics. In…
Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…
Stochastic portfolio theory aims at finding relative arbitrages, i.e. trading strategies which outperform the market with probability one. Functionally generated portfolios, which are deterministic functions of the market weights, are an…
The construction of an efficient portfolio with a good level of return and minimal risk depends on selecting the optimal combination of stocks. This paper introduces a novel decision-making framework for stock selection based on fractional…
This paper studies a type of periodic utility maximization for portfolio management in an incomplete market model, where the underlying price diffusion process depends on some external stochastic factors. The portfolio performance is…