Rearrangement Algorithm and Maximum Entropy

39 Pages Posted: 23 Dec 2015 Last revised: 17 Aug 2017

See all articles by Carole Bernard

Carole Bernard

Grenoble Ecole de Management; Vrije Universiteit Brussel (VUB)

Oleg Bondarenko

University of Illinois at Chicago - Department of Finance

Steven Vanduffel

Vrije Universiteit Brussel (VUB)

Date Written: June 10, 2017

Abstract

We study properties of the Rearrangement Algorithm (RA) in the context of inferring dependence among variables given their marginal distributions and the distribution of the sum. We show that the RA yields solutions that are “close to each other” and exhibit almost maximum entropy. The consequence of this result is that the RA can be used as a stable algorithm for inferring a dependence that is economically meaningful.

Keywords: Entropy, Block Rearrangement Algorithm, Inferring dependence, Maximum determinant

JEL Classification: C60

Suggested Citation

Bernard, Carole and Bondarenko, Oleg and Vanduffel, Steven, Rearrangement Algorithm and Maximum Entropy (June 10, 2017). Available at SSRN: https://ssrn.com/abstract=2705708 or http://dx.doi.org/10.2139/ssrn.2705708

Carole Bernard

Grenoble Ecole de Management ( email )

12, rue Pierre Sémard
Grenoble Cedex, 38003
France

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
http://www.vub.ac.be/
Brussels, 1050
Belgium

Oleg Bondarenko

University of Illinois at Chicago - Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States
(312) 996-2362 (Phone)
(312) 413-7948 (Fax)

Steven Vanduffel (Contact Author)

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
Brussels, Brabant 1050
Belgium

HOME PAGE: http://www.stevenvanduffel.com

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