RelValAnalysis (version 1.0)

EEControl: Control Term in the Energy-entropy Decomposition

Description

The function computes the control term of the energy-entropy decomposition.

Usage

EEControl(pi.current, pi.next, nu.next, nu.implied = nu.next)

Value

A number.

Details

The control term measures how much the portfolio moves towards the current market weights. For details, see Section 2 of Pal and Wong (2013). Here the formula is modified slightly so that the energy-entropy decomposition holds identically whether the market is buy-and-hold or not.

References

Pal, S. and T.-K. L. Wong (2013). Energy, entropy, and arbitrage. arXiv preprint arXiv:1308.5376.

See Also

FreeEnergy, RelativeEntropy, EnergyEntropyDecomp

Examples

pi.current <- c(0.2, 0.3, 0.5)
pi.new <- c(0.3, 0.3, 0.4)
mu.new <- c(0.5, 0.3, 0.2)

EEControl(pi.current, pi.new, mu.new)