Related papers: Entropic Dynamics of Exchange Rates and Options
Analogies between the price dynamics in the foreign exchange market and 3-dimensional fully developed turbulence were recently presented in Nature vol. 381, 767-769 (1996). Independently, we have carried out a study comparing the parallel…
The accurate prediction of time-changing variances is an important task in the modeling of financial data. Standard econometric models are often limited as they assume rigid functional relationships for the variances. Moreover, function…
This paper proposes an enhanced approach to modeling and forecasting volatility using high frequency data. Using a forecasting model based on Realized GARCH with multiple time-frequency decomposed realized volatility measures, we study the…
A possible mechanism of time is formulated by developing an idea of time replaced by quantum correlations, with the aid of modern quantum information theory. We invent a microscopic model, where correlations of a closed system are steadily…
This paper proposes a target zones exchange rate model with a terminal condition of entering a currency zone. It is assumed that the exchange rate is a function of the fundamental and time. Another essential assumptions of the model is that…
We explore a stochastic model that enables capturing external influences in two specific ways. The model allows for the expression of uncertainty in the parametrisation of the stochastic dynamics and incorporates patterns to account for…
In the Entropic Dynamics (ED) framework quantum theory is derived as an application of entropic methods of inference. The physics is introduced through appropriate choices of variables and of constraints that codify the relevant physical…
We introduce a class of randomly time-changed fast mean-reverting stochastic volatility models and, using spectral theory and singular perturbation techniques, we derive an approximation for the prices of European options in this setting.…
The entropic way of formulating Heisenberg's uncertainty principle not only plays a fundamental role in applications of quantum information theory but also is essential for manifesting genuine nonclassical features of quantum systems. In…
For configurational changes of soft matter systems affected or caused by external hydrodynamic flow, we identify applied work, exchanged heat, and entropy change on the level of a single trajectory. These expressions guarantee invariance of…
We show that time-dependent fluctuations $\{\Delta x\}$ in foreign exchange rates are accurately described by a random walk in a complex plane that is demarcated into the gain (+) and loss (-) sectors. $\{\Delta x\}$ is the outcome of $N$…
Inspired by Katok's intermediate entropy property [Inst. Hautes \'Etudes Sci. Publ. Math. 51 (1980), 137-173], we introduce and study the notion of entropy flexibility for discrete-time and continuous-time dynamical systems. By using…
The geometry of dynamical systems estimated from trajectory data is a major challenge for machine learning applications. Koopman and transfer operators provide a linear representation of nonlinear dynamics through their spectral…
This paper presents static and dynamic versions of univariate, multivariate, and multilevel functional time-series methods to forecast implied volatility surfaces in foreign exchange markets. We find that dynamic functional principal…
Transfer entropy is used to establish a measure of causal relationships between two variables. Symbolic transfer entropy, as an estimation method for transfer entropy, is widely applied due to its robustness against non-stationarity. This…
A change in a stochastic system has three representations: Probabilistic, statistical, and informational: (i) is based on random variable $u(\omega)\to\tilde{u}(\omega)$; this induces (ii) the probability distributions $F_u(x)\to…
Entropic Dynamics (ED) is an inference-based framework that seeks to construct dynamical theories of physics without assuming the conventional formalism --- the Hamiltonians, Poisson brackets, Hilbert spaces, etc. --- typically associated…
In this paper we provide a comprehensive analysis of a structural model for the dynamics of prices of assets traded in a market originally proposed in [1]. The model takes the form of an interacting generalization of the geometric Brownian…
We discuss the role of information entropy on the behaviour of random processes, and how this might take effect in the dynamics of financial market prices. We then go on to show how the Open Quantum Systems approach can be used as a more…
An expanding literature articulates the view that Taylor rules are helpful in predicting exchange rates. In a changing world however, Taylor rule parameters may be subject to structural instabilities, for example during the Global Financial…