Dynamic Scoring: Probabilistic Model Selection Based on Utility Maximization

Kód výsledku v IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216208%3A11320%2F19%3A10401994" target="_blank" >RIV/00216208:11320/19:10401994 - isvavai.cz</a>

Nalezeny alternativní kódy

RIV/64941663:_____/19:N0000001

Výsledek na webu

<a href="https://verso.is.cuni.cz/pub/verso.fpl?fname=obd_publikace_handle&handle=qQcMdw~tdF" target="_blank" >https://verso.is.cuni.cz/pub/verso.fpl?fname=obd_publikace_handle&handle=qQcMdw~tdF</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.3390/e21010036" target="_blank" >10.3390/e21010036</a>

Jazyk výsledku

angličtina

Název v původním jazyce

Dynamic Scoring: Probabilistic Model Selection Based on Utility Maximization

Popis výsledku v původním jazyce

We propose a novel approach of model selection for probability estimates that may be applied in time evolving setting. Specifically, we show that any discrepancy between different probability estimates opens a possibility to compare them by trading on a hypothetical betting market that trades probabilities. We describe the mechanism of such a market, where agents maximize some utility function which determines the optimal trading volume for given odds. This procedure produces supply and demand functions, that determine the size of the bet as a function of a trading probability. These functions are closed form for the choice of logarithmic and exponential utility functions. Having two probability estimates and the corresponding supply and demand functions, the trade matching these estimates happens at the intersection of the supply and demand functions. We show that an agent using correct probabilities will realize a profit in expectation when trading against any other set of probabilities. The expected profit realized by the correct view of the market probabilities can be used as a measure of information in terms of statistical divergence.

Název v anglickém jazyce

Dynamic Scoring: Probabilistic Model Selection Based on Utility Maximization

Popis výsledku anglicky

We propose a novel approach of model selection for probability estimates that may be applied in time evolving setting. Specifically, we show that any discrepancy between different probability estimates opens a possibility to compare them by trading on a hypothetical betting market that trades probabilities. We describe the mechanism of such a market, where agents maximize some utility function which determines the optimal trading volume for given odds. This procedure produces supply and demand functions, that determine the size of the bet as a function of a trading probability. These functions are closed form for the choice of logarithmic and exponential utility functions. Having two probability estimates and the corresponding supply and demand functions, the trade matching these estimates happens at the intersection of the supply and demand functions. We show that an agent using correct probabilities will realize a profit in expectation when trading against any other set of probabilities. The expected profit realized by the correct view of the market probabilities can be used as a measure of information in terms of statistical divergence.

Druh

J_imp - Článek v periodiku v databázi Web of Science

CEP obor

—

OECD FORD obor

10103 - Statistics and probability

Projekt

<a href="/cs/project/GA16-21216S" target="_blank" >GA16-21216S: Management portfolia s několika referenčními aktivy</a><br>

Návaznosti

I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Rok uplatnění

2019

Kód důvěrnosti údajů

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Název periodika

Entropy

ISSN

1099-4300

e-ISSN

—

Svazek periodika

21

Číslo periodika v rámci svazku

1

Stát vydavatele periodika

CH - Švýcarská konfederace

Počet stran výsledku

22

Strana od-do

36

Kód UT WoS článku

000459740300036

EID výsledku v databázi Scopus

2-s2.0-85060391361