Exploration of entropy on decision models. Nonlinear dependence, utility and socio-economics welfare analysis

Cofinanciado por:
Project title | Exploration of entropy on decision models. Nonlinear dependence, utility and socio-economics welfare analysis
Project Code | PTDC/GES/70529/2006
Main objective |

Region of intervention |

Beneficiary entity |
  • Universidade de Évora(líder)
  • Instituto Superior de Ciências do Trabalho e da Empresa(parceiro)

Approval date | 01-09-2007
Start date | 01-09-2007
Date of the conclusion | 01-09-2010

Total eligible cost |
European Union financial support |
National/regional public financial support |

Summary

Traditionally the approaches used in economy and finance have been based on regression models whose assumptions are essentially linear and omit the nature of the variables to be studied, this type of approach reveals some problems in the estimation level.  In this way, possible developments in the extent of the focus of the present project, may consider the identification of the sources of nonlinearitoies in the financial time series, through the separation of the deterministic from the stochastic components. Another potential application is the exploration of the entropy as uncertainty measure in decision models. The utility functions of the investors that are risk averse, can be obtained using several methods, namely the maximization of entropy approach, that plays an important role in microeconomic analysis of decisions regarding contingent wealth.


Objectives, activities and expected/achieved results

Objectives

Identification of sources of nonlinearity in financial time series; Modelling the possible nonlinear dependences and identifying its possible determinist and stochastic components; Testing entropy and mutual information as uncertainty measures in international stock markets; Exploration of the maximization of entropy as a possible approach in order to estimate Portuguese investor utility function.

Activities

Publications of books, papers and other scientific work;  communications in international meetings;  international conferences organized at ISCTE; seminars open to the scientific community held at ISCTE and other universities.