Research output: Contribution to journal › Article › peer-review

Journal | Open systems & information dynamics |
---|---|

Date | Published - Dec 2008 |

Issue number | 4 |

Volume | 15 |

Number of pages | 25 |

Pages (from-to) | 303-327 |

Original language | English |

The notion of utility maximising entropy (u-entropy)of a probability density, which was introduced and studied in[37], is extended in two directions.First, the relative u-entropy of two probability measures in arbitrary probability spaces is defined. Then, specialising to discrete probability spaces, we also introduce the absolute u-entropy of a probability measure. Both notions are based on the idea, borrowed from mathematical finance, of maximising the expected utility of the terminal wealth of an investor. Moreover, u-entropy is also relevant in thermodynamics,as it can replace the standard Boltzmann- Shannon entropy in the Second Law. If the utility function is logarithmicor isoelastic(a powerfunction), then the well-known notions of Boltzmann-Shannon andRenyi relative entropy are recovered. We establish the principal properties of relative and discrete u- entropy and discuss the links with several related approaches in the lierature.

- INCOMPLETE MARKETS, OPTIMAL INVESTMENT, MAXIMIZATION

Find related publications, people, projects, datasets and more using interactive charts.