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Utility maximizing entropy and the second law of thermodynamics

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JournalAnnals of Probability
DatePublished - Jul 2004
Issue number3
Volume32
Number of pages24
Pages (from-to)2261-2285
Original languageEnglish

Abstract

Expected utility maximization problems in mathematical finance lead to a generalization of the classical definition of entropy. It is demonstrated that a necessary and sufficient condition for the second law of thermodynamics to operate is that any one of the generalized entropies should tend to its minimum value of zero.

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