Related papers: Utility Function from Maximum Entropy Principle
We introduce an extension to Merton's famous continuous time model of optimal consumption and investment, in the spirit of previous works by Pliska and Ye, to allow for a wage earner to have a random lifetime and to use a portion of the…
We study a continuous-time expected utility maximization problem in which the investor at maturity receives the value of a contingent claim in addition to the investment payoff from the financial market. The investor knows nothing about the…
An agent choosing between various actions tends to take the one with the lowest cost. But this choice is arguably too rigid (not adaptive) to be useful in complex situations, e.g., where exploration-exploitation trade-off is relevant in…
In our derivation of the second law of thermodynamics from the relation of adiabatic accessibility of equilibrium states we stressed the importance of being able to scale a system's size without changing its intrinsic properties. This…
This paper studies an optimal consumption-investment problem for an investor whose instantaneous utility depends on both consumption and wealth, and the investor faces a general borrowing constraint that the investment amount in the risky…
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 consider an insurance company modelling its surplus process by a Brownian motion with drift. Our target is to maximise the expected exponential utility of discounted dividend payments, given that the dividend rates are bounded by some…
This paper studies the problem of optimal investment in incomplete markets, robust with respect to stopping times. We work on a Brownian motion framework and the stopping times are adapted to the Brownian filtration. Robustness can only be…
This paper studies stability of the exponential utility maximization when there are small variations on agent's utility function. Two settings are considered. First, in a general semimartingale model where random endowments are present, a…
We consider the maximum entropy problems associated with R\'enyi $Q$-entropy, subject to two kinds of constraints on expected values. The constraints considered are a constraint on the standard expectation, and a constraint on the…
Entropy production is the crucial quantity characterizing irreversible phenomena and the second law of thermodynamics. Yet, a ubiquitous definition eludes consensus. Given that entropy production arises from incomplete access to…
The concept of Shannon Entropy for probability distributions and associated Maximum Entropy Principle are extended here to the concepts of Relative Divergence of one Grading Function from another and Maximum Relative Divergence Principle…
A game-theoretic model of scrip (artificial currency) systems is analyzed. It is shown that relative entropy can be used to characterize the distribution of agent wealth when all agents use threshold strategies---that is, they volunteer to…
In this paper we aim to find a measure for the diversity of cash flows between agents in an economy. We argue that cash flows can be linked to probabilities of finding a currency unit in a given cash flow. We then use the information…
Consider an investor trading dynamically to maximize expected utility from terminal wealth. Our aim is to study the dependence between her risk aversion and the distribution of the optimal terminal payoff. Economic intuition suggests that…
I show that the maximum entropy principle can be replaced by a more natural assumption, that there exists a phenomenological function of entropy consistent with the microscopic model. The requirement of existence provides then a unique…
To study the assumption that the utility maximization hypothesis implicitly adds to consumer theory, we consider a mathematical representation of pre-marginal revolution consumer theory based on subjective exchange ratios. We introduce two…
Making statistical predictions requires tackling two problems: one must assign appropriate probability distributions and then one must calculate a variety of expected values. The method of maximum entropy is commonly used to address the…
Assessing systemic risk in financial markets is of great importance but it often requires data that are unavailable or available at a very low frequency. For this reason, systemic risk assessment with partial information is potentially very…
After the justification of the maximum entropy approach for equilibrium thermodynamic system, and of a maximum path entropy algorithm for nonequilibrium thermodynamic systems by virtue of the principle of virtual work, we present in this…