Related papers: Entropic Dynamics of Exchange Rates and Options
The Entropic Dynamics reconstruction of quantum mechanics is extended to quantum field theory in curved space-time. The Entropic Dynamics framework, which derives quantum theory as an application of the method of maximum entropy, is…
We introduce the entropic measure transform (EMT) problem for a general process and prove the existence of a unique optimal measure characterizing the solution. The density process of the optimal measure is characterized using a…
This paper expands on stochastic volatility models by proposing a data-driven method to select the macroeconomic events most likely to impact volatility. The paper identifies and quantifies the effects of macroeconomic events across…
Permutation entropy quantifies the diversity of possible orderings of the values a random or deterministic system can take, as Shannon entropy quantifies the diversity of values. We show that the metric and permutation entropy…
Recently, a minimal kinetic model for fluid flow, known as entropic lattice Boltzmann method, has been proposed for the simulation of isothermal hydrodynamic flows. At variance with previous Lattice Boltzmann methods, the entropic version…
We study nonlinear dynamics of the Earth's tropical climate system. For that, we apply a recently developed technique for feature extraction and mode decomposition of spatiotemporal data generated by ergodic dynamical systems. The method…
The geometric Brownian motion (GBM) is widely employed for modeling stochastic processes, yet its solutions are characterized by the log-normal distribution. This comprises predictive capabilities of GBM mainly in terms of forecasting…
We consider the problem of valuing a European option written on an asset whose dynamics are described by an exponential L\'evy-type model. In our framework, both the volatility and jump-intensity are allowed to vary stochastically in time…
The entropic sampling dynamics based on the reversible information transfer to and from the environment is applied to the globally coupled Ising model in the presence of an oscillating magnetic field. When the driving frequency is low…
Entropic dynamics (ED) is a framework that allows one to derive quantum theory as a Hamilton-Killing flow on the cotangent bundle of a statistical manifold. These flows are such that they preserve the symplectic and the (information) metric…
The Bell-KS theorem and the more recent $\psi$-epistemic \emph{no-go} theorems of QM are discussed in the context of Entropic Dynamics. In doing so we find that the Bell-KS theorem allows for, a perhaps overlooked, hybrid-contextual model…
Understanding and measuring model risk is important to financial practitioners. However, there lacks a non-parametric approach to model risk quantification in a dynamic setting and with path-dependent losses. We propose a complete theory…
A new framework for pricing the European currency option is developed in the case where the spot exchange rate fellows a time-changed fractional Brownian motion. An analytic formula for pricing European foreign currency option is proposed…
We discuss price variations distributions in foreign exchange markets, characterizing them both in calendar and business time frameworks. The price dynamics is found to be the result of two distinct processes, a multi-variance diffusion and…
Dynamical systems can be analyzed via their Frobenius-Perron transfer operator and its estimation from data is an active field of research. Recently entropic transfer operators have been introduced to estimate the operator of deterministic…
A central problem of Quantitative Finance is that of formulating a probabilistic model of the time evolution of asset prices allowing reliable predictions on their future volatility. As in several natural phenomena, the predictions of such…
This paper aims at solving FX market volatility modeling problem and finding the most becoming approach to this task. Validity of two competing approaches, classical econometric generalized conditional heteroscedasticity and mathematical…
Entropic Dynamics (ED) is a framework that allows the formulation of dynamical theories as an application of entropic methods of inference. In the generic application of ED to derive the Schroedinger equation for N particles the dynamics is…
Grasping the historical volatility of stock market indices and accurately estimating are two of the major focuses of those involved in the financial securities industry and derivative instruments pricing. This paper presents the results of…
We present a model of financial markets originally proposed for a turbulent flow, as a dynamic basis of its intermittent behavior. Time evolution of the price change is assumed to be described by Brownian motion in a power-law potential,…