Tunaru, Radu (2016) Entropy Concepts Applied to Option Pricing. Annals of the University of Craiova, Mathematics and Computer Science Series, 43 (1). pp. 108-117. ISSN 1223-6934. E-ISSN 2246-9958. (KAR id:57952)
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Official URL http://inf.ucv.ro/~ami/index.php/ami/article/view/... |
Abstract
Uncertainty is one of the most important concept in financial mathematics applications. In this paper we review some important aspects related to the application of entropy-related concepts to option pricing. The Kullback-Leibler information divergence and the informational energy introduced by Onicescu are the main tools investigated in this paper. We highlight a necessary condition that must be verified when obtaining the probability distribution minimising the Kullback-Leibler information divergence. Deriving a probability distribution by optimising the information energy has some pitfalls that are discussed in this paper.
Item Type: | Article |
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Uncontrolled keywords: | Kullback-Leibler divergence measure, informational energy, option pricing, optimisation |
Subjects: |
H Social Sciences > HA Statistics > HA33 Management Science H Social Sciences > HG Finance Q Science > QA Mathematics (inc Computing science) > QA273 Probabilities |
Divisions: | Divisions > Kent Business School - Division > Department of Accounting and Finance |
Depositing User: | Radu Tunaru |
Date Deposited: | 19 Oct 2016 10:10 UTC |
Last Modified: | 07 Oct 2021 13:39 UTC |
Resource URI: | https://kar.kent.ac.uk/id/eprint/57952 (The current URI for this page, for reference purposes) |
Tunaru, Radu: | ![]() |
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