An Entropic Approach to Analyze Investor Utility Involving a Financial Structured Product

Sukanto Bhattacharya and Kuldeep Kumar
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Sukanto Bhattacharya: Business Administration Department, Alaska Pacific University, U.S.A.
Kuldeep Kumar: Faculty of Business, Bond University, Australia

Journal of Economics and Management, 2006, vol. 2, issue 2, 111-122

Abstract: We propose an entropic model of extrinsic utility arising out of the element of choice regarding portfolio re-balancing strategies available to an individual investor who has chosen to invest in a financial structured product with a terminal payoff same as that from a rainbow option. We also propose a generalization of our posited framework by incorporating a fuzzy measure of probabilistic uncertainty concerning the nature of the structured financial product.

Keywords: financial structured product; rainbow option; tracking portfolio; investor utility; Shannon entropy; Markov process; fuzzy measure (search for similar items in EconPapers)
JEL-codes: C44 C65 G11 (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:jec:journl:v:2:y:2006:i:2:p:111-122

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