Related papers: Energy, entropy, and arbitrage
In financial asset management, choosing a portfolio requires balancing returns, risk, exposure, liquidity, volatility and other factors. These concerns are difficult to compare explicitly, with many asset managers using an intuitive or…
The selection of an equilibrium state by maximising the entropy of a system, subject to certain constraints, is often powerfully motivated as an exercise in logical inference, a procedure where conclusions are reached on the basis of…
We introduce a novel entropy-related function, \textit{non-repeatability}, designed to capture dynamical behaviors in complex systems. Its normalized form, \textit{mutability}, has been previously applied in statistical physics as a…
A maximum entropy-based framework is presented for the synthesis of projections from multiple Earth climate models. This identifies the most representative (most probable) model from a set of climate models -- as defined by specified…
We consider an investor who seeks to maximize her expected utility derived from her terminal wealth relative to the maximum performance achieved over a fixed time horizon, and under a portfolio drawdown constraint, in a market with local…
We consider a single-period portfolio selection problem for an investor, maximizing the expected ratio of the portfolio utility and the utility of a best asset taken in hindsight. The decision rules are based on the history of stock returns…
The present article explores the application of randomized control techniques in empirical asset pricing and performance evaluation. It introduces geometric random walks, a class of Markov chain Monte Carlo methods, to construct flexible…
We hypothesize that portfolio sorts based on the V/P ratio generate excess returns and consist of companies that are undervalued for prolonged periods. Results, for the US market show that high V/P portfolios outperform low V/P portfolios…
We introduce a new measure of interdependence among the components of a random vector along the main diagonal of the vector copula, i.e. along the line $u_{1}=\ldots=u_{J}$, for $\left(u_{1},\ldots,u_{J}\right)\in\left[0,1\right]^{J}$. Our…
A diagnostic package is derived from the concept of specific available enthalpy, leading to the definition of a local and complete energy cycle. It is useful to understand the transformations of energy occurring at any particular pressure…
We introduce polynomial processes in the sense of [8] in the context of stochastic portfolio theory to model simultaneously companies' market capitalizations and the corresponding market weights. These models substantially extend volatility…
We utilize long-term memory, fractal dimension and approximate entropy as input variables for the Efficiency Index [Kristoufek & Vosvrda (2013), Physica A 392]. This way, we are able to comment on stock market efficiency after controlling…
We propose a virtual bidding strategy by modeling the price differences between the day-ahead market and the real-time market as Brownian motion with drift, where the drift rate and volatility are functions of meteorological variables. We…
Cryptocurrency markets exhibit pronounced momentum effects and regime-dependent volatility, presenting both opportunities and challenges for systematic trading strategies. We propose AdaptiveTrend, a multi-component algorithmic trading…
Markets have internal dynamics leading to excess volatility and other phenomena that are difficult to explain using rational expectations models. This paper studies these using a nonequilibrium price formation rule, developed in the context…
Accelerating mirrors provide a simple conceptual laboratory for studying particle production and the relation between trajectory and particle, energy, and entropy fluxes. We focus on the relation between energy and entropy, studying some…
Stock portfolio optimization is the process of continuous reallocation of funds to a selection of stocks. This is a particularly well-suited problem for reinforcement learning, as daily rewards are compounding and objective functions may…
An investment portfolio consists of $n$ algorithmic trading strategies, which generate vectors of positions in trading assets. Sign opposite trades (buy/sell) cross each other as strategies are combined in a portfolio. Then portfolio…
We develop an entropic framework to model the dynamics of stocks and European Options. Entropic inference is an inductive inference framework equipped with proper tools to handle situations where incomplete information is available. The…
We propose utilizing entropy as a diagnostic tool to distinguish between constant and dynamical dark energy models. Entropy, a measure of the system's disorder or information content, captures the complexity and evolution of the universe.…