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

Abstract

We propose an entropic model of extrinsic utility arising out of the element of choice_x000D_ 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.