Related papers: The value of informational arbitrage
We discuss the objectives of automation equipped with non-trivial decision making, or creating artificial intelligence, in the financial markets and provide a possible alternative. Intelligence might be an unintended consequence of…
The paper studies the concepts of hedging and arbitrage in a non probabilistic framework. It provides conditions for non probabilistic arbitrage based on the topological structure of the trajectory space and makes connections with the usual…
Our goal here is to discuss the pricing problem of European and American options in discrete time using elementary calculus so as to be an easy reference for first year undergraduate students. Using the binomial model we compute the fair…
We study the role of contextual information in the online learning problem of brokerage between traders. In this sequential problem, at each time step, two traders arrive with secret valuations about an asset they wish to trade. The learner…
An agent acquires a costly flexible signal before making a decision. We explore to what degree knowledge of the agent's information costs helps predict her behavior. We establish an impossibility result: learning costs alone generate no…
If you recommend a product to me and I buy it, how much should you be paid by the seller? And if your sole interest is to maximize the amount paid to you by the seller for a sequence of recommendations, how should you recommend optimally if…
We revisit the role of instrumental value as a driver of adaptive behavior. In active inference, instrumental or extrinsic value is quantified by the information-theoretic surprisal of a set of observations measuring the extent to which…
We study the pricing of credit derivatives with asymmetric information. The managers have complete information on the value process of the firm and on the default threshold, while the investors on the market have only partial observations,…
Two agents trade an item in a simultaneous offer setting, where the exchange takes place if and only if the buyer's bid price weakly exceeds the seller's ask price. Each agent is randomly assigned the buyer or seller role. Both agents are…
In this paper, we consider the pricing and hedging of a financial derivative for an insider trader, in a model-independent setting. In particular, we suppose that the insider wants to act in a way which is independent of any modelling…
Information is a critical dimension in warfare. Inaccurate information such as misinformation or disinformation further complicates military operations. In this paper, we examine the value of misinformation and disinformation to a military…
A concept of martingale-fair index of return, consistent with Arbitrage Free Pricing Theory, is introduced. An explicit formula for the average rate of return of a group of investment/pension funds in a discrete time stochastic model is…
We derive the amount of information retrieved by a quantum measurement in estimating an unknown maximally entangled state, along with the pertaining disturbance on the state itself. The optimal tradeoff between information and disturbance…
Negotiation is a very common interaction between automated agents. Many common negotiation protocols work with cardinal utilities, even though ordinal preferences, which only rank the outcomes, are easier to elicit from humans. In this work…
How do consultants price expertise? This paper studies a problem of selling information products (expertise) to a buyer (client) who faces decision-making problem under uncertainty. The client is privately informed about the type of…
We derive a general upper bound to mutual information in terms of the Fisher information. The bound may be further used to derive a lower bound for the Bayesian quadratic cost. These two provide alternatives to other inequalities in the…
When pricing options, there may be different views on the instantaneous mean return of the underlying price process. According to Black (1972), where there exist heterogeneous views on the instantaneous mean return, this will result in…
We study what changes to an agent's decision problem increase her value for information. We prove that information becomes more valuable if and only if the agent's reduced-form payoff in her belief becomes more convex. When the…
One of the impediments to the efficiency of information markets is the inherent information asymmetry present in them, exacerbated by the "buyer's inspection paradox" (the buyer cannot mitigate the asymmetry by "inspecting" the information,…
The human mind is capable of extraordinary achievements, yet it often appears to work against itself. It actively defends its cherished beliefs even in the face of contradictory evidence, conveniently interprets information to conform to…