Related papers: Energy, entropy, and arbitrage
We analyze characteristics' joint predictive information through the lens of out-of-sample power utility functions. Linking weights to characteristics to form optimal portfolios suffers from estimation error which we mitigate by maximizing…
Modern portfolio theory(MPT) addresses the problem of determining the optimum allocation of investment resources among a set of candidate assets. In the original mean-variance approach of Markowitz, volatility is taken as a proxy for risk,…
Preserving biodiversity and ecosystem stability is a challenge that can be pursued through modern statistical mechanics modeling. Here we introduce a variational maximum entropy-based algorithm to evaluate the entropy in a minimal ecosystem…
A vast concourse of events and phenomena occur in nature that may be interrelated by a entropy-maximization technique that provides a comprehensible explanation of a range of physical problems, integrating in a new framework the universal…
This paper studies the time-varying structure of the equity market with respect to market capitalization. First, we analyze the distribution of the 100 largest companies' market capitalizations over time, in terms of inequality,…
Earlier studies have shown that stock market distributions can be well described by distributions derived from Tsallis entropy, which is a generalization of Shannon entropy to non-extensive systems. In this paper, Tsallis relative entropy…
General hyperbolic systems of balance laws with inhomogeneity in space and time in all constitutive functions are studied in the context of relative entropy. A framework is developed in this setting that contributes to a measure-valued weak…
Scale invariance, collective behaviours and structural reorganization are crucial for portfolio management (portfolio composition, hedging, alternative definition of risk, etc.). This lack of any characteristic scale and such elaborated…
It has long been known that the relative entropy of a non-equilibrium ensemble to the corresponding equilibrium ensemble is the excess free energy. We show that the reverse relative entropy also has a thermodynamic interpretation: it is the…
This paper introduces a unified framework for battery energy arbitrage under uncertain market prices that integrates chance-constrained terminal state-of-charge requirements with online threshold policies. We first cast the multi-interval…
Portfolio management problems are often divided into two types: active and passive, where the objective is to outperform and track a preselected benchmark, respectively. Here, we formulate and solve a dynamic asset allocation problem that…
Entropy has emerged as a dynamic, interdisciplinary, and widely accepted quantitative measure of uncertainty across different disciplines. A unified understanding of entropy measures, supported by a detailed review of their theoretical…
This paper develops a method to derive optimal portfolios and risk premia explicitly in a general diffusion model for an investor with power utility and a long horizon. The market has several risky assets and is potentially incomplete.…
Summarized by the efficient market hypothesis, the idea that stock prices fully reflect all available information is always confronted with the behavior of real-world markets. While there is plenty of evidence indicating and quantifying the…
In recent years there has been a closer interrelationship between several scientific areas trying to obtain a more realistic and rich explanation of the natural and social phenomena. Among these it should be emphasized the increasing…
A fractal approach to the long-short portfolio optimization is proposed. The algorithmic system based on the composition of market-neutral spreads into a single entity was considered. The core of the optimization scheme is a fractal walk…
Portfolio turnpikes state that, as the investment horizon increases, optimal portfolios for generic utilities converge to those of isoelastic utilities. This paper proves three kinds of turnpikes. In a general semimartingale setting, the…
The stochastic entropy generated during the evolution of a system interacting with an environment may be separated into three components, but only two of these have a non-negative mean. The third component of entropy production is…
The investor is interested in the expected return and he is also concerned about the risk and the uncertainty assumed by the investment. One of the most popular concepts used to measure the risk and the uncertainty is the variance and/or…
We extend Relative Robust Portfolio Optimisation models to allow portfolios to optimise their distance to a set of benchmarks. Portfolio managers are also given the option of computing regret in a way which is more in line with market…