Information measure for financial time series: quantifying short-term market heterogeneity

A well-interpretable measure of information has been recently proposed based on a partition obtained by intersecting a random sequence with its moving average. The partition yields disjoint sets of the sequence, which are then ranked according to their size to form a probability distribution function and finally fed in the expression of the Shannon entropy. In this work, such entropy measure is implemented on the time series of prices and volatilities of six financial markets. The analysis has been performed, on tick-by-tick data sampled every minute for six years of data from 1999 to 2004, for a broad range of moving average windows and volatility horizons. The study shows that the entropy of the volatility series depends on the individual market, while the entropy of the price series is practically a market-invariant for the six markets. Finally, a cumulative information measure - the `Market Heterogeneity Index'- is derived from the integral of the proposed entropy measure. The values of the Market Heterogeneity Index are discussed as possible tools for optimal portfolio construction and compared with those obtained by using the Sharpe ratio a traditional risk diversity measure

Unraveling Short- and Farsightedness in Politics

The absence of the deselection threat in incumbents’ last term in office can be negative or positive for society. Some politicians may reduce their efforts, while others may pursue beneficial long-term policies that may be unpopular in the short term. We propose a novel pension system that solves the effort problem while preserving willingness to implement long-term policies. The idea is to give politicians the option to choose between a flexible pension scheme and a fixed pension scheme. In a flexible pension scheme, the pension increases with short term performance as measured by the vote share of the officeholder’s party in the next election. This system increases social welfare by letting officeholders self-select into those activities that most benefit society. We analyze the properties and consequences of such a system and assess its robustness. Finally, we extend the pension system with choice to non-last-term situations and derive a general welfare result.elections, political contracts, vote-share thresholds, incumbents, selection, effort

Long-Range Dependence in Financial Markets: a Moving Average Cluster Entropy Approach

A perspective is taken on the intangible complexity of economic and social systems by investigating the underlying dynamical processes that produce, store and transmit information in financial time series in terms of the \textit{moving average cluster entropy}. An extensive analysis has evidenced market and horizon dependence of the \textit{moving average cluster entropy} in real world financial assets. The origin of the behavior is scrutinized by applying the \textit{moving average cluster entropy} approach to long-range correlated stochastic processes as the Autoregressive Fractionally Integrated Moving Average (ARFIMA) and Fractional Brownian motion (FBM). To that end, an extensive set of series is generated with a broad range of values of the Hurst exponent $H$ and of the autoregressive, differencing and moving average parameters $p,d,q$. A systematic relation between \textit{moving average cluster entropy}, \textit{Market Dynamic Index} and long-range correlation parameters $H$, $d$ is observed. This study shows that the characteristic behaviour exhibited by the horizon dependence of the cluster entropy is related to long-range positive correlation in financial markets. Specifically, long range positively correlated ARFIMA processes with differencing parameter $d\simeq 0.05$, $d\simeq 0.15$ and $d\simeq 0.25$ are consistent with \textit{moving average cluster entropy} results obtained in time series of DJIA, S\&P500 and NASDAQ

Impact assessment for vulnerabilities in open-source software libraries

Software applications integrate more and more open-source software (OSS) to benefit from code reuse. As a drawback, each vulnerability discovered in bundled OSS potentially affects the application. Upon the disclosure of every new vulnerability, the application vendor has to decide whether it is exploitable in his particular usage context, hence, whether users require an urgent application patch containing a non-vulnerable version of the OSS. Current decision making is mostly based on high-level vulnerability descriptions and expert knowledge, thus, effort intense and error prone. This paper proposes a pragmatic approach to facilitate the impact assessment, describes a proof-of-concept for Java, and examines one example vulnerability as case study. The approach is independent from specific kinds of vulnerabilities or programming languages and can deliver immediate results

Modularity for Security-Sensitive Workflows

An established trend in software engineering insists on using components (sometimes also called services or packages) to encapsulate a set of related functionalities or data. By defining interfaces specifying what functionalities they provide or use, components can be combined with others to form more complex components. In this way, IT systems can be designed by mostly re-using existing components and developing new ones to provide new functionalities. In this paper, we introduce a notion of component and a combination mechanism for an important class of software artifacts, called security-sensitive workflows. These are business processes in which execution constraints on the tasks are complemented with authorization constraints (e.g., Separation of Duty) and authorization policies (constraining which users can execute which tasks). We show how well-known workflow execution patterns can be simulated by our combination mechanism and how authorization constraints can also be imposed across components. Then, we demonstrate the usefulness of our notion of component by showing (i) the scalability of a technique for the synthesis of run-time monitors for security-sensitive workflows and (ii) the design of a plug-in for the re-use of workflows and related run-time monitors inside an editor for security-sensitive workflows