Related papers: Energy, entropy, and arbitrage
By using the Jacobi metric of the configuration space, and assuming ergodicity, we calculate the Boltzmann entropy $S$ of a finite-dimensional system around a non-degenerate critical point of its potential energy $V$. We compare $S$ with…
This paper explores the effectiveness of high-frequency options trading strategies enhanced by advanced portfolio optimization techniques, investigating their ability to consistently generate positive returns compared to traditional long or…
By using entropy and entropy production, we calculate the steady flux of some phenomena. The method we use is a competition method, $S_S/\tau+\sigma={\it maximum}$, where $S_S$ is system entropy, $\sigma$ is entropy production and $\tau$ is…
In this paper we analyze different ways of performing principal component analysis throughout three different approaches: robust covariance and correlation matrix estimation, projection pursuit approach and non-parametric maximum entropy…
Portfolio optimization methods suffer from a catalogue of known problems, mainly due to the facts that pair correlations of asset returns are unstable, and that extremal risk measures such as maximum drawdown are difficult to predict due to…
This paper studies a continuous-time market {under stochastic environment} where an agent, having specified an investment horizon and a target terminal mean return, seeks to minimize the variance of the return with multiple stocks and a…
A common approach to evaluate entropy in quantum systems is to solve a master-Bloch equation to determine density matrix and substitute it in entropy definition. However, this method has been recently understood to lack many energy…
We obtain new constraints for the modular energy of general states by using the monotonicity property of relative entropy. In some cases, modular energy can be related to the energy density of states and these constraints lead to…
We introduce an ensemble learning method for dynamic portfolio valuation and risk management building on regression trees. We learn the dynamic value process of a derivative portfolio from a finite sample of its cumulative cash flow. The…
We introduce a new class of tree-based models, P-Trees, for analyzing (unbalanced) panel of individual asset returns, generalizing high-dimensional sorting with economic guidance and interpretability. Under the mean-variance efficient…
Halfway between the experiment and the focus group, between the quiz and a game, we have experienced a new format to "focus" on sustainability and the fundamental laws of thermodynamics and its principles. Concepts as reversibility,…
The new framework for finance is proposed. This framework based on three known approaches in econophysics. Assumptions of the framework are the following: 1. For the majority of situations market follows non-arbitrage condition. 2. For the…
This paper develops an axiomatic framework for ranking metrics, a general class of functionals for evaluating and ordering financial or insurance positions. Unlike traditional risk-adjusted performance measures-such as the Sharpe ratio,…
Equity risk premium is a central component of every risk and return model in finance and a key input to estimate costs of equity and capital in both corporate finance and valuation. An article by Damodaran examines three broad approaches…
In this paper, we introduce EvoPort, a novel evolutionary portfolio optimization method that leverages stochastic exploration over a spectrum of investment pipeline depths. From raw equity data, we employ a randomized feature generation…
The paper predicts an Efficient Market Property for the equity market, where stocks, when denominated in units of the growth optimal portfolio (GP), have zero instantaneous expected returns. Well-diversified equity portfolios are shown to…
This note discusses some of the aspects of a model for the covariance of equity returns based on a simple "isotropic" structure in which all pairwise correlations are taken to be the same value. The effect of the structure on feasible…
We study the consistency of sample mean-variance portfolios of arbitrarily high dimension that are based on Bayesian or shrinkage estimation of the input parameters as well as weighted sampling. In an asymptotic setting where the number of…
Entropy, its production, and its change in a dynamical system can be understood from either a fully stochastic dynamic description or from a deterministic dynamics exhibiting chaotic behavior. By taking the former approach based on the…
Econophysics, is based on the premise that some ideas and methods from physics can be applied to economic situations. We intend to show in this paper how a physics concept such as entropy can be applied to an economic problem. In so doing,…