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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…

Pricing of Securities · Quantitative Finance 2015-01-07 Mihaly Ormos , David Zibriczky

Risk-sensitive planning aims to identify policies maximizing some tail-focused metrics in Markov Decision Processes (MDPs). Such an optimization task can be very costly for the most widely used and interpretable metrics such as threshold…

Machine Learning · Statistics 2025-07-09 Alexandre Marthe , Samuel Bounan , Aurélien Garivier , Claire Vernade

The maximum entropy principle can be used to assign utility values when only partial information is available about the decision maker's preferences. In order to obtain such utility values it is necessary to establish an analogy between…

Statistical Finance · Quantitative Finance 2009-11-13 Andreia Dionisio , A. Heitor Reis

Artificial intelligence models and methods commonly lack causal interpretability. Despite the advancements in interpretable machine learning (IML) methods, they frequently assign importance to features which lack causal influence on the…

Machine Learning · Computer Science 2024-01-29 Francisco Nunes Ferreira Quialheiro Simoes , Mehdi Dastani , Thijs van Ommen

On the basis of the balance equations for energy-momentum, spin, particle and entropy density, an approach is considered which represents a comparatively general framework for special- and general-relativistic continuum thermodynamics. In…

General Relativity and Quantum Cosmology · Physics 2009-11-13 W. Muschik , H. -H. v. Borzeszkowski

Having a perfect model to compute the optimal policy is often infeasible in reinforcement learning. It is important in high-stakes domains to quantify and manage risk induced by model uncertainties. Entropic risk measure is an exponential…

Machine Learning · Computer Science 2020-06-23 Reazul Hasan Russel , Bahram Behzadian , Marek Petrik

Configurational entropy is an important factor in the free energy change of many macromolecular recognition and binding processes, and has been intensively studied. Despite great progresses that have been made, the global sampling remains…

Biological Physics · Physics 2012-12-04 Wenzhao Li , Kai Wang , Suyan Tian , Pu Tian

Assessing systemic risk in financial markets is of great importance but it often requires data that are unavailable or available at a very low frequency. For this reason, systemic risk assessment with partial information is potentially very…

Risk Management · Quantitative Finance 2018-08-01 Domenico Di Gangi , Fabrizio Lillo , Davide Pirino

This study investigates entropy's potential for analyzing scientific research patterns across disciplines. Originating from thermodynamics, entropy now measures uncertainty and diversity in information systems. We examine Shannon Entropy,…

Physics and Society · Physics 2025-03-27 Yujie Shi , Alex Jie Yang , Sanhong Deng

Information-theoretic quantities, such as entropy, are used to quantify the amount of information a given variable provides. Entropies can be used together to compute the mutual information, which quantifies the amount of information two…

Data Analysis, Statistics and Probability · Physics 2014-12-22 Kevin H. Knuth , Deniz Gençağa , William B. Rossow

The aim of this study is to develop a method that would enable the company to prioritize the means contributing the most to its performance. The proposed method is based on the profit margin (an economical performance measure of the…

General Physics · Physics 2011-01-19 Barbara Lyonnet , Maurice Pillet , Magali Pralus , Ludovic Guizzi , Georges Habchi

We propose that a linear relation between the energy of stress-bearing interactions and the surface of contact within the fragment-asperity model for earthquakes. It reveals as the only one that leads to a closed elementary form for a…

Geophysics · Physics 2026-03-17 O. Sotolongo-Costa , A. V. Mora-Rodríguez , M. E. Mora-Ramos

The world is entering an unprecedented period of critical mineral demand, driven by the global transition to renewable energy technologies and electric vehicles. This transition presents unique challenges in mineral resource development,…

Artificial Intelligence · Computer Science 2025-02-11 Mansur Arief , Yasmine Alonso , CJ Oshiro , William Xu , Anthony Corso , David Zhen Yin , Jef K. Caers , Mykel J. Kochenderfer

The method of maximum entropy is quite a powerful tool to solve the generalized moment problem, which consists of determining the probability density of a random variable X from the knowledge of the expected values of a few functions of the…

Statistics Theory · Mathematics 2015-10-15 Henryk Gzyl

The maximum entropy approach operating with quite general entropy measure and constraint is considered. It is demonstrated that for a conditional or parametrized probability distribution $f(x|\mu)$ there is a "universal" relation among the…

Statistical Mechanics · Physics 2015-05-19 E. V. Vakarin , J. P. Badiali

Typically, the entropy of an isolated system in equilibrium is calculated by counting the number of accessible microstates, or in more general cases by using the Gibbs formula. In irreversible processes entropy spontaneously increases and…

Statistical Mechanics · Physics 2020-04-16 Taha A Malik , Rafael Lopez-Mobilia

We study the response of granular materials to external stress using experiment, simulation, and theory. We derive an entropic, Ginzburg-Landau functional that enforces mechanical stability and positivity of contact forces. In this…

The maximum entropy principle advocates to evaluate events' probabilities using a distribution that maximizes entropy among those that satisfy certain expectations' constraints. Such principle can be generalized for arbitrary decision…

Machine Learning · Statistics 2021-12-16 Santiago Mazuelas , Yuan Shen , Aritz Pérez

Entropy is a very useful concept from physics that tries to explain how a system behaves from a point of view of the thermodynamics. However, there are two ways to explain entropy, and it depends on if we are studying a microsystem or a…

General Finance · Quantitative Finance 2024-07-02 Martin Pomares Calero

Entropy production is a key quantity in any finite-time thermodynamic process. It is intimately tied with the fundamental laws of thermodynamics, embodying a tool to extend thermodynamic considerations all the way to non-equilibrium…

Quantum Physics · Physics 2022-02-08 Gabriel T. Landi , Mauro Paternostro