TY - GEN
T1 - Application of Thermodynamics Entropy Concept in Financial Markets
AU - Prabakaran, Sellamuthu
N1 - Publisher Copyright:
© 2018, Springer International Publishing AG, part of Springer Nature.
PY - 2018
Y1 - 2018
N2 - Entropy is a mathematically defined quantity that is generally used for characterizing the probability of outcomes in a system that is undergoing a process. It was originally introduced in thermodynamics by Rudolf Clausius (Philos Mag J Sci 40:122–127, 1870) to measure the ratio of transferred heat through a reversible process in an isolated system. In statistical mechanics the interpretation of entropy is the measure of uncertainty about the system that remains after observing its macroscopic properties (pressure, temperature, or volume). In this work, we attempt that the concept of entropy in thermodynamics be applied to financial markets. The main goal of this study is fourfold: (1) First we begin our approach through the concept of financial economics entropy. (2) Next we introduce the concept of entropy in economic systems. (3) Here we are exploring the interpretation of entropy in finance. (4) Then we extend the concept of entropy used in finance with standard economic utility theory by using of entropy and its maximization. (5) Finally, we construct the model of variance equilibrium under an entropy (financial) risk measure. And this paper ends with conclusion.
AB - Entropy is a mathematically defined quantity that is generally used for characterizing the probability of outcomes in a system that is undergoing a process. It was originally introduced in thermodynamics by Rudolf Clausius (Philos Mag J Sci 40:122–127, 1870) to measure the ratio of transferred heat through a reversible process in an isolated system. In statistical mechanics the interpretation of entropy is the measure of uncertainty about the system that remains after observing its macroscopic properties (pressure, temperature, or volume). In this work, we attempt that the concept of entropy in thermodynamics be applied to financial markets. The main goal of this study is fourfold: (1) First we begin our approach through the concept of financial economics entropy. (2) Next we introduce the concept of entropy in economic systems. (3) Here we are exploring the interpretation of entropy in finance. (4) Then we extend the concept of entropy used in finance with standard economic utility theory by using of entropy and its maximization. (5) Finally, we construct the model of variance equilibrium under an entropy (financial) risk measure. And this paper ends with conclusion.
KW - Entropy
KW - Financial markets
KW - Risk measure and thermodynamics
KW - Shannon entropy
UR - http://www.scopus.com/inward/record.url?scp=85125244082&partnerID=8YFLogxK
U2 - 10.1007/978-3-319-70055-7_2
DO - 10.1007/978-3-319-70055-7_2
M3 - Conference contribution
AN - SCOPUS:85125244082
SN - 9783319700540
T3 - Springer Proceedings in Business and Economics
SP - 13
EP - 28
BT - Advances in Panel Data Analysis in Applied Economic Research - 2017 International Conference on Applied Economics, ICOAE 2017
A2 - Tsounis, Nicholas
A2 - Vlachvei, Aspasia
PB - Springer Science and Business Media B.V.
T2 - International Conference on Applied Economics, ICOAE 2017
Y2 - 6 July 2017 through 8 July 2017
ER -