Related papers: Utility Function from Maximum Entropy Principle

We consider a sequence of repeated interactions between an agent and an environment. Uncertainty about the environment is captured by a probability distribution over a space of hypotheses, which includes all computable functions. Given a…

Entropy serves as a central observable which indicates uncertainty in many chemical, thermodynamical, biological and ecological systems, and the principle of the maximum entropy (MaxEnt) is widely supported in natural science. Recently,…

We develop a statistical framework for wealth allocation in which agents hold discrete units of wealth and macrostates are defined by how wealth is distributed across agents. The structure of the economic state space is characterized…

This paper studies the problem of maximizing expected utility from terminal wealth in a semi-static market composed of derivative securities, which we assume can be traded only at time zero, and of stocks, which can be traded continuously…

In most data-scientific approaches, the principle of Maximum Entropy (MaxEnt) is used to a posteriori justify some parametric model which has been already chosen based on experience, prior knowledge or computational simplicity. In a…

Exponential distribution is ubiquitous in the framework of multi-agent systems. Usually, it appears as an equilibrium state in the asymptotic time evolution of statistical systems. It has been explained from very different perspectives. In…

The principle of maximum entropy is a broadly applicable technique for computing a distribution with the least amount of information possible while constrained to match empirically estimated feature expectations. However, in many real-world…

Econophysics, is based on the premise that some ideas and methods from physics can be applied to economic situations. We intend to show in this paper how a physics concept such as entropy can be applied to an economic problem. In so doing,…

At the zero lower bound, the New Keynesian model predicts that output and inflation collapse to implausibly low levels, and that government spending and forward guidance have implausibly large effects. To resolve these anomalies, we…

Stability of the utility maximization problem with random endowment and indifference prices is studied for a sequence of financial markets in an incomplete Brownian setting. Our novelty lies in the nonequivalence of markets, in which the…

This paper investigates the emergence of wealth inequality through a minimalist kinetic exchange model that incorporates two fundamental economic features: fixed-amount transactions and hard budget constraints. In contrast to the maximum…

As operators acting on the undetermined final settlement of a derivative security, expectation is linear but price is non-linear. When the market of underlying securities is incomplete, non-linearity emerges from the bid-offer around the…

We provide an economic interpretation of the practice consisting in incorporating risk measures as constraints in a classic expected return maximization problem. For what we call the infimum of expectations class of risk measures, we show…

This paper considers a utility maximization and optimal asset allocation problem in the presence of a stochastic endowment that cannot be fully hedged through trading in the financial market. After studying continuity properties of the…

We perform a stability analysis for the utility maximization problem in a general semimartingale model where both liquid and illiquid assets (random endowments) are present. Small misspecifications of preferences (as modeled via expected…

We find the optimal indemnity to maximize the expected utility of terminal wealth of a buyer of insurance whose preferences are modeled by an exponential utility. The insurance premium is computed by a convex functional. We obtain a…

We give a general formulation of the utility maximization problem under nondominated model uncertainty in discrete time and show that an optimal portfolio exists for any utility function that is bounded from above. In the unbounded case,…

This paper investigates well posedness of utility maximization problems for financial markets where stock returns depend on a hidden Gaussian mean reverting drift process. Since that process is potentially unbounded, well posedness cannot…

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…

Economic systems are similar with physic systems for their large number of individuals and the exist of equilibrium. In this paper, we present a model applying the equilibrium statistical model in economic systems. Consistent with…