Related papers: Entropic Dynamics of Exchange Rates and Options
We propose empirical dynamic programming algorithms for Markov decision processes (MDPs). In these algorithms, the exact expectation in the Bellman operator in classical value iteration is replaced by an empirical estimate to get `empirical…
We analyze the problem of the analytical characterization of the probability distribution of financial returns in the exponential Ornstein-Uhlenbeck model with stochastic volatility. In this model the prices are driven by a Geometric…
We construct a model of inflation based on a low-energy effective theory of spontaneously broken global scale invariance. This provides a shift symmetry that protects the inflaton potential from quantum corrections. Since the underlying…
In this paper we calculate the metric and folding entropies for a family of non-invertible symbolic dynamical systems $(\Sigma_{m_-,m_+}, \sigma_\phi)$ which generalizes the standard bilateral Bernoulli shifts. The space $\Sigma_{m_-,m_+}$…
We present a systematic study of various statistical characteristics of high-frequency returns from the foreign exchange market. This study is based on six exchange rates forming two triangles: EUR-GBP-USD and GBP-CHF-JPY. It is shown that…
The length-scale dependence of the dynamic entropy is studied in a molecular dynamics simulation of a binary Lennard-Jones liquid above the mode-coupling critical temperature $T_c$. A number of methods exist for estimating the entropy of…
Entropic lattice Boltzmann methods have been developed to alleviate intrinsic stability issues of lattice Boltzmann models for under-resolved simulations. Its reliability in combination with moving objects was established for various…
Making decisions freely presupposes that there is some indeterminacy in the environment and in the decision making engine. The former is reflected on the behavioral changes due to communicating: few changes indicate rigid environments;…
The entropic lattice Boltzmann framework proposed the construction of the discrete equilibrium by taking into consideration minimization of a discrete entropy functional. The effect of this form of the discrete equilibrium on properties of…
We study a generalized geometric Brownian motion framework that incorporates both entries of new units and exit mechanisms for the current population, extending earlier stochastic resetting models where these rates are treated as identical.…
`Entropy' appears as driving force in many different evolution equations, both deterministic and stochastic, and in these equations this `entropy' also takes different forms. We show how all these examples can be understood as different…
Like any fluid heated from below, the atmosphere is subject to vertical instability which triggers convection. Convection occurs on small time and space scales, which makes it a challenging feature to include in climate models. Usually…
In this paper we study the pricing of exchange options under a dynamic described by stochastic correlation with random jumps. In particular, we consider a Ornstein-Uhlenbeck covariance model with Levy Background Noise Process driven by…
We suggest employing log-ergodic processes to simulate the velocity of money in an ergodic manner. Our approach sheds light on economic behavior, policy implications, and financial dynamics by maintaining long-term stability. By bridging…
Scale invariance, collective behaviours and structural reorganization are crucial for portfolio management (portfolio composition, hedging, alternative definition of risk, etc.). This lack of any characteristic scale and such elaborated…
The formulation of quantum mechanics within the framework of entropic dynamics is extended to the domain of relativistic quantum fields. The result is a non-dissipative relativistic diffusion in the infinite dimensional space of field…
We consider a stochastic process which is (a) described by a continuous-time Markov chain on only short time-scales and (b) constrained to conserve a number of hidden quantities on long time-scales. We assume that the transition matrix of…
In this paper an econophysics model for the currency exchange operations with commission is proposed. With this purpose some analogies and similarities of the processes that take place in the frame of the electrochemical system made from…
This paper proposes a numerical method for pricing foreign exchange (FX) options in a model which deals with stochastic interest rates and stochastic volatility of the FX rate. The model considers four stochastic drivers, each represented…
Entropy based ideas find wide-ranging applications in finance for calibrating models of portfolio risk as well as options pricing. The abstracted problem, extensively studied in the literature, corresponds to finding a probability measure…