Related papers: Financial Portfolios based on Tsallis Relative Ent…
In an earlier study, we showed that Tsallis relative entropy (TRE), which is the generalization of Kullback-Leibler relative entropy (KLRE) to non-extensive systems, can be used as a possible risk measure in constructing risk optimal…
The Kullback-Leibler cluster entropy $\mathcal{D_{C}}[P \| Q] $ is evaluated for the empirical and model probability distributions $P$ and $Q$ of the clusters formed in the realized volatility time series of five assets (SP\&500, NASDAQ,…
One of the major issues studied in finance that has always intrigued, both scholars and practitioners, and to which no unified theory has yet been discovered, is the reason why prices move over time. Since there are several well-known…
In the world of modern financial theory, portfolio construction has traditionally operated under at least one of two central assumptions: the constraints are derived from a utility function and/or the multivariate probability distribution…
Kullback-Leibler relative-entropy has unique properties in cases involving distributions resulting from relative-entropy minimization. Tsallis relative-entropy is a one parameter generalization of Kullback-Leibler relative-entropy in the…
A novel type of a multiscale approach, called Relative Resolution (RelRes), can correctly retrieve the behavior of various nonpolar liquids, whilst speeding up molecular simulations by almost an order of magnitude. In this approach in a…
We calculate and analyze various entropy measures and their properties for selected probability distributions. The entropies considered include Shannon, R\'enyi, generalized R\'enyi, Tsallis, Sharma-Mittal, and modified Shannon entropy,…
We quantify model risk of a financial portfolio whereby a multi-period mean-standard-deviation criterion is used as a selection criterion. In this work, model risk is defined as the loss due to uncertainty of the underlying distribution of…
Horizon risk (see arXiv:2301.04971) is studied in the context of cash non-additive fully-dynamic risk measures induced by BSDEs. Furthermore, we introduce a risk measure based on generalized Tsallis entropy which can dynamically evaluate…
Accounting for the non-normality of asset returns remains challenging in robust portfolio optimization. In this article, we tackle this problem by assessing the risk of the portfolio through the "amount of randomness" conveyed by its…
Entropy and relative or cross entropy measures are two very fundamental concepts in information theory and are also widely used for statistical inference across disciplines. The related optimization problems, in particular the maximization…
Parametric portfolio policies may experience estimation risk. I develop a generalized Bayesian framework that updates priors, delivering a posterior distribution over characteristic tilts and out-of-sample returns that is the unique…
We investigate entropy as a financial risk measure. Entropy explains the equity premium of securities and portfolios in a simpler way and, at the same time, with higher explanatory power than the beta parameter of the capital asset pricing…
The construction of an efficient portfolio with a good level of return and minimal risk depends on selecting the optimal combination of stocks. This paper introduces a novel decision-making framework for stock selection based on fractional…
The maximum entropy formalism developed by Jaynes determines the relevant ensemble in nonequilibrium statistical mechanics by maximising the entropy functional subject to the constraints imposed by the available information. We present an…
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…
Maximum Tsallis entropy (MTE) framework in reinforcement learning has gained popularity recently by virtue of its flexible modeling choices including the widely used Shannon entropy and sparse entropy. However, non-Shannon entropies suffer…
In the existing financial literature, entropy based ideas have been proposed in portfolio optimization, in model calibration for options pricing as well as in ascertaining a pricing measure in incomplete markets. The abstracted problem…
We introduce a pathwise approach to analyze the relative performance of an equity portfolio with respect to a benchmark market portfolio. In this energy-entropy framework, the relative performance is decomposed into three components: a…
We investigate the cumulative Tsallis entropy, an information measure recently introduced as a cumulative version of the classical Tsallis differential entropy, which is itself a generalization of the Boltzmann-Gibbs statistics. This…