Related papers: Utility Function from Maximum Entropy Principle
We construct an utility-based dynamic asset pricing model for a limit order market. The price is nonlinear in volume and subject to market impact. We solve an optimal hedging problem under the market impact and derive the dynamics of the…
It is supposed that the exponential multiplier in the method of the non-equilibrium statistical operator (Zubarev`s approach) can be considered as a distribution density of the past lifetime of the system, and can be replaced by an…
In this paper, we consider the problem of maximizing the expected discounted utility of dividend payments for an insurance company that controls risk exposure by purchasing proportional reinsurance. We assume the preference of the insurer…
We study the Merton problem of optimal consumption-investment for the case of two investors sharing a final wealth. The typical example would be a husband and wife sharing a portfolio looking to optimize the expected utility of consumption…
The so called "globalization" process (i.e. the inexorable integration of markets, currencies, nation-states, technologies and the intensification of consciousness of the world as a whole) has a behavior exactly equivalent to a system that…
We study expected utility maximization problem with constant relative risk aversion utility function in a complete market under the reinforcement learning framework. To induce exploration, we introduce the Tsallis entropy regularizer, which…
We propose a new class of monetary risk measures for assessing financial and ESG risk. The construction is based on classical shortfall risk measures with loss function replaced by a multi-attribute utility function. We present an extensive…
In the context of open inflation, we calculate the probability distribution for the density parameter $\Omega$. A large class of two field models of open inflation do not lead to infinite open universes, but to an ensemble of inflating…
Chater and MacKay [CM] derived an entropy function of state for exchange economies satisfying a list of axioms, and showed that a change of state of a system of such economies is possible if and only if their total entropy does not…
Prediction markets are long known for prediction accuracy. This study systematically explores the fundamental properties of prediction markets, addressing questions about their information aggregation process and the factors contributing to…
We present an optimal investment theorem for a currency exchange model with random and possibly discontinuous proportional transaction costs. The investor's preferences are represented by a multivariate utility function, allowing for…
We revisit the problem of portfolio selection, where an investor maximizes utility subject to a risk constraint. Our framework is very general and accommodates a wide range of utility and risk functionals, including non-concave utilities…
We apply the Principle of Maximum Entropy to the study of a general class of deterministic fractal sets. The scaling laws peculiar to these objects are accounted for by means of a constraint concerning the average content of information in…
In this paper we study the optimal investment and reinsurance problem of an insurance company whose investment preferences are described via a forward dynamic exponential utility in a regime-switching market model. Financial and actuarial…
In this work we study the individual strategies carried out by agents undergoing transactions in wealth exchange models. We analyze the role of risk propensity in the behavior of the agents and find a critical risk, such that agents with…
In this paper we study the problem of maximizing expected utility from the terminal wealth with proportional transaction costs and random endowment. In the context of the existence of consistent price systems, we consider the duality…
Thermodynamics teaches that if a system initially off-equilibrium is coupled to work sources, the maximum work that it may yield is governed by its energy and entropy. For finite systems this bound is usually not reachable. The maximum…
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…
The Principle of Maximum Entropy is a rigorous technique for estimating an unknown distribution given partial information while simultaneously minimizing bias. However, an important requirement for applying the principle is that the…
We revisit the classical problem of inverting dimension-reducing linear mappings using the maximum entropy (MaxEnt) criterion. In the literature, solutions are problem-dependent, inconsistent, and use different entropy measures. We propose…