Unit VI - Elements of Information Theory in Finance

Italian version

Lecturer: Luca Faes

The module introduces Information Dynamics measures, a set of analytical tools that apply basic information theory concepts to the study of complex systems described by multivariate data sets in order to characterise their dynamic behaviour. The measures quantify the information produced, stored and transferred towards a dynamical system, as well as the synergistic or redundant modification of information transferred towards a target by different source systems. Different approaches for the estimation of Information Dynamics measures will be presented, which allow their numerical calculation in discrete or continuous time from data presented in the form of numerical series or time events. In the laboratory sessions, the two estimation approaches will be used for the experimental analysis of financial data, with reference to the calculation of information flow between time series derived from stock market indices in the global financial market, and between event-based time series of high frequency transactions in algorithmic trading.

Papers suggested:

• J. Escolano. A Practical Guide to Public Debt Dynamics, Fiscal Sustainability, and Cyclical Adjustment of Budgetary Aggregates,

• M. Athanasopoulou, A. Consiglio et al. Risk management for sovereign financing within a debt sustainability framework (Policy Report),

• S.A. Zenios and A. Consiglio. Risk Management for Sovereign Debt Financing with Sustainability Conditions.