Related papers: Energy, entropy, and arbitrage
This paper studies the properties of the optimal portfolio-consumption strategies in a {finite horizon} robust utility maximization framework with different borrowing and lending rates. In particular, we allow for constraints on both…
A new methodology has been introduced to clean the correlation matrix of single stocks returns based on a constrained principal component analysis using financial data. Portfolios were introduced, namely "Fundamental Maximum Variance…
In this paper, we consider the portfolio optimization problem in a financial market under a general utility function. Empirical results suggest that if a significant market fluctuation occurs, invested wealth tends to have a notable change…
Portfolio optimisation is essential in quantitative investing, but its implementation faces several practical difficulties. One particular challenge is converting optimal portfolio weights into real-life trades in the presence of realistic…
In this paper we apply the entropy principle to the relativistic version of the differential equations describing a standard fluid flow, that is, the equations for mass, momentum, and a system for the energy matrix. These are the second…
Recently Lewis Bowen introduced a notion of entropy for measure-preserving actions of a countable sofic group on a standard probability space admitting a generating partition with finite entropy. By applying an operator algebra perspective…
We study how to assess the potential benefit of diversifying an equity portfolio by investing within and across equity sectors. We analyse 20 years of US stock price data, which includes the global financial crisis (GFC) and the COVID-19…
Along with the energy transition, the energy markets change their organization toward more decentralized and self-organized structures, striving for locally optimal profits. These tendencies may endanger the physical grid stability. One…
Most methodologies for materials criticality assessment score supply risk and societal importance. Market-based criteria offer quantitative measures for assessment. Here we develop a statistical approach based on a geologic entropy function…
In the market place, diversification reduces risk and provides protection against extreme events by ensuring that one is not overly exposed to individual occurrences. We argue that diversification is best measured by characteristics of the…
Factor modeling of asset returns has been a dominant practice in investment science since the introduction of the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). The factors, which account for the systematic risk,…
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…
We consider irreversible and coupled reversible-irreversible nonlinear port-Hamiltonian systems and the respective sets of thermodynamic equilibria. In particular, we are concerned with optimal state transitions and output stabilization on…
A discrete time probabilistic model, for optimal equity allocation and portfolio selection, is formulated so as to apply to (at least) reinsurance. In the context of a company with several portfolios (or subsidiaries), representing both…
Many biological systems perform close to their physical limits, but promoting this optimality to a general principle seems to require implausibly fine tuning of parameters. Using examples from a wide range of systems, we show that this…
We extend and test empirically the multifractal model of asset returns based on a multiplicative cascade of volatilities from large to small time scales. The multifractal description of asset fluctuations is generalized into a multivariate…
In financial markets marked by inherent volatility, extreme events can result in substantial investor losses. This paper proposes a portfolio strategy designed to mitigate extremal risks. By applying extreme value theory, we evaluate the…
In this paper we review various information-theoretic characterizations of the approach to equilibrium in biological systems. The replicator equation, evolutionary game theory, Markov processes and chemical reaction networks all describe…
We empirically test predictability on asset price by using stock selection rules based on maximum drawdown and its consecutive recovery. In various equity markets, monthly momentum- and weekly contrarian-style portfolios constructed from…
This paper studies an equity market of stochastic dimension, where the number of assets fluctuates over time. In such a market, we develop the fundamental theorem of asset pricing, which provides the equivalence of the following statements:…