Related papers: Utility Function from Maximum Entropy Principle
We consider an agent who invests in a stock and a money market account with the goal of maximizing the utility of his investment at the final time T in the presence of a proportional transaction cost. The utility function considered is…
Equity premium, the surplus returns of stocks over bonds, has been an enduring puzzle. While numerous prior works approach the problem assuming the utility of money is invariant across contexts, our approach implies that in efficient…
We present a general holistic theory for the organization of complex networks, both human-engineered and naturally-evolved. Introducing concepts of value of interactions and satisfaction as generic network performance measures, we show that…
Rewards typically express desirabilities or preferences over a set of alternatives. Here we propose that rewards can be defined for any probability distribution based on three desiderata, namely that rewards should be real-valued, additive…
The maximum von Neumann entropy principle subject to given constraints of mean values of some physical observables determines the density matrix. Similarly the stationary action principle in the case of time-dependent (dissipative)…
Entropy is a measure of self-information which is used to quantify losses. Entropy was developed in thermodynamics, but is also used to compare probabilities based on their deviating information content. Corresponding model uncertainty is…
Semi-continuous data comes from a distribution that is a mixture of the point mass at zero and a continuous distribution with support on the positive real line. A clear example is the daily rainfall data. In this paper, we present a novel…
Maximum entropy modeling is a flexible and popular framework for formulating statistical models given partial knowledge. In this paper, rather than the traditional method of optimizing over the continuous density directly, we learn a smooth…
The expected utility hypothesis is a popular concept in economics that is useful for making decisions when the payoff is uncertain. In this paper, we investigate the implications of a fluctuation theorem in the theory of expected utility.…
The sum-utility maximization problem is known to be important in the energy systems literature. The conventional assumption to address this problem is that the utility is concave. But for some key applications, such an assumption is not…
The classical Density Functional Theory (DFT) is introduced as an application of entropic inference for inhomogeneous fluids at thermal equilibrium. It is shown that entropic inference reproduces the variational principle of DFT when…
We use the formalism of 'Maximum Principle of Shannon's Entropy' to derive the general power law distribution function, using what seems to be a reasonable physical assumption, namely, the demand of a constant mean "internal order"…
In this paper we present an interacting-agent model of stock markets. We describe a stock market through an Ising-like model in order to formulate the tendency of traders getting to be influenced by the other traders' investment attitudes…
We consider the problem of estimating the population probability distribution given a finite set of multivariate samples, using the maximum entropy approach. In strict keeping with Jaynes' original definition, our precise formulation of the…
The investor is interested in the expected return and he is also concerned about the risk and the uncertainty assumed by the investment. One of the most popular concepts used to measure the risk and the uncertainty is the variance and/or…
Zipf's law, and power laws in general, have attracted and continue to attract considerable attention in a wide variety of disciplines - from astronomy to demographics to software structure to economics to linguistics to zoology, and even…
The asymptotic convergence of probability density function (pdf) and convergence of differential entropy are examined for the non-stationary processes that follow the maximum entropy principle (MaxEnt) and maximum entropy production…
Social gravity law widely exists in human travel, population migration, commodity trade, information communication, scientific collaboration and so on. Why is there such a simple law in many complex social systems is an interesting…
In this paper, we propose an optimization-based mechanism to explain power law distributions, where the function that the optimization process is seeking to optimize is derived mathematically, then the behavior and interpretation of this…
In this note, we explicitly solve the problem of maximizing utility of consumption (until the minimum of bankruptcy and the time of death) with a constraint on the probability of lifetime ruin, which can be interpreted as a risk measure on…