Related papers: Premium Calculation Based on Physical Principles
Statistical mechanics provides a useful analog for understanding the behavior of complex adaptive systems, including electric power markets and the power systems they intend to govern. Market-based control is founded on the conjecture that…
In statistical mechanics, measuring the number of available states and their probabilities, and thus the system's entropy, enables the prediction of the macroscopic properties of a physical system at equilibrium. This predictive capacity…
We study fluctuations of pressure in equilibrium for classical particle systems. In equilibrium statistical mechanics, pressure for a microscopic state is defined by the derivative of a thermodynamic function or, more mechanically, through…
This paper concerns the dual risk model, dual to the risk model for insurance applications, where premiums are surplus-dependent. In such a model premiums are regarded as costs, while claims refer to profits. We calculate the mean of the…
We find the wealth distribution for an economic agent in the financial market, in analogy with standard derivation of generaliz Boltzman (Tsallis) factor in statistical mechanics. In this respect, Tsallis entropic index separates two…
We develop a simple yet efficient Lagrangian method for computing equilibrium prices in a mean-field game price-formation model. We prove that equilibrium prices are optimal in terms of a suitable criterion and derive a primal-dual…
This project works with the risk model developed by Li et al. (2015) and quests modelling, estimating and pricing insurance for risks brought in by innovative technologies, or other emerging or latent risks. The model considers two…
A classical particle system coupled with a thermostat driven by an external constant force reaches its steady state when the ensemble-averaged drift velocity does not vary with time. The statistical mechanics of such a system is derived…
We study the optimal control problem for a weighted mean-field system. A new feature of the control problem is that the coefficients depend on the state process as well as its weighted measure and the control variable. By applying…
This paper argues that the fundamental principle of contemporary financial economics is balanced reciprocity, not the principle of utility maximisation that is important in economics more generally. The argument is developed by analysing…
Quantum mechanics is reformulated using Hartle's definition of the state of an individual physical system and a variant of von Neumann's propositional calculus. An elementary set of quantum postulates lead inductively to the familiar…
The foundations of the Boltzmann-Gibbs (BG) distributions for describing equilibrium statistical mechanics of systems are examined. Broadly, they fall into: (i) probabilistic paaroaches based on the principle of equal a priori probability…
A thermodynamic approach to the description of economic systems and processes is developed. It is shown that there is a deep analogy between the parameters of thermodynamic and economic systems (markets); so each thermodynamic parameter can…
In a macroscopic (quantum or classical) Hamiltonian system, we prove the second law of thermodynamics in the forms of the minimum work principle and the law of entropy increase, under the assumption that the initial state is described by a…
In this paper, we introduce a parametrized family of prices derived from the Maximum Entropy Principle. The price is obtained from the distribution that minimizes bias, given the bid and ask volume imbalance at the top of the order book.…
Calculation of an optimal tariff is a principal challenge for pricing actuaries. In this contribution we are concerned with the renewal insurance business discussing various mathematical aspects of calculation of an optimal renewal tariff.…
We revisit the classical credibility results of Jewell and B\"uhlmann to obtain credibility premiums for a GLM using a modern Bayesian approach. Here the prior distributions can be chosen without restrictions to be conjugate to the response…
The risk premium is one of main concepts in mathematical finance. It is a measure of the trade-offs investors make between return and risk and is defined by the excess return relative to the risk-free interest rate that is earned from an…
We combine general equilibrium theory and theorie generale of stochastic processes to derive structural results about equilibrium state prices.
We present a methodology for representing probabilistic relationships in a general-equilibrium economic model. Specifically, we define a precise mapping from a Bayesian network with binary nodes to a market price system where consumers and…