Related papers: Premium Calculation Based on Physical Principles
We provide an axiomatic approach to general premium principles in a probability-free setting that allows for Knightian uncertainty. Every premium principle is the sum of a risk measure, as a generalization of the expected value, and a…
We consider computation of market values of bonus payments in multi-state with-profit life insurance. The bonus scheme consists of additional benefits bought according to a dividend strategy that depends on the past realization of financial…
In electricity markets, it is sensible to use a two-factor model with mean reversion for spot prices. One of the factors is an Ornstein-Uhlenbeck (OU) process driven by a Brownian motion and accounts for the small variations. The other…
From positions, attained by modern theoretical physics in understanding of the universe bases, the methodological and philosophical analysis of fundamental physical concepts and their formal and informal connections with the real economic…
In this paper an interesting application of mathematics in economics is presented: the formulation of the theory of consumer basic problem, grounded on the concept of preferences relation and operationalized with optimization tools.
In a closed economic system, money is conserved. Thus, by analogy with energy, the equilibrium probability distribution of money must follow the exponential Gibbs law characterized by an effective temperature equal to the average amount of…
The net-premium principle is considered to be the most genuine and fair premium principle in actuarial applications. However, an insurance company, applying the net-premium principle, goes bankrupt with probability one in the long run, even…
Based on the analog between the stochastic dynamics and quantum harmonic oscillator, we propose a market force driving model to generalize the Black-Scholes model in finance market. We give new schemes of option pricing, in which we can…
The first part of the paper is devoted to the foundations, that is the mathematical and physical justification, of equilibrium statistical mechanics. It is a pedagogical attempt, mostly based on Khinchin's presentation, which purpose is to…
Mechanisms for the automation of uncertainty are required for expert systems. Sometimes these mechanisms need to obey the properties of probabilistic reasoning. A purely numeric mechanism, like those proposed so far, cannot provide a…
Technology trends as digitalization and Industry 4.0 initiate a growing demand for new business models. Most of this models requires a fundamental shift of operational and financial risks between seller and buyer. A key question is…
There are several aspects of data markets that distinguish them from a typical commodity market: asymmetric information, the non-rivalrous nature of data, and informational externalities. Formally, this gives rise to a new class of games…
This paper studies Markov perfect equilibria in a repeated duopoly model where sellers choose algorithms. An algorithm is a mapping from the competitor's price to own price. Once set, algorithms respond quickly. Customers arrive randomly…
This paper gives yet another definition of game-theoretic probability in the context of continuous-time idealized financial markets. Without making any probabilistic assumptions (but assuming positive and continuous price paths), we obtain…
This paper studies an asset pricing model in a partially observable market with a large number of heterogeneous agents using the mean field game theory. In this model, we assume that investors can only observe stock prices and must infer…
This paper develops a theory of competitive equilibrium with indivisible goods based entirely on economic conditions on demand. The key idea is to analyze complementarity and substitutability between bundles of goods, rather than merely…
We propose a new methodology to compute equilibria for general equilibrium problems on exchange economies with real financial markets, home-production, and retention. We demonstrate that equilibrium prices can be determined by solving a…
We synthesize and discuss some new developments in econophysics. In doing so, we focus on option pricing. We relax the assumptions of constant volatility and interest rate. In doing so, we rely on the square root of the Brownian motion. We…
We consider the problem of allocating indivisible goods in a way that is fair, using one of the leading market mechanisms in economics: the competitive equilibrium from equal incomes. Focusing on two major classes of valuations, namely…
Economic engineering is a new field wherein economic systems are modelled in the same manner as traditional mechanical and electrical engineering systems. In this paper, we use Newton's theory of motion as the basis for the theory of…