EEControl: Control Term in the Energy-entropy Decomposition
In RelValAnalysis: Relative Value Analysis

Description Usage Arguments Details Value References See Also Examples

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

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

`pi.current`	a numeric vector of the current portfolio weights.
`pi.next`	a numeric vector of the portfolio weights for the next period.
`nu.next`	a numeric vector of the benchmark weights for the next period.
`nu.implied`	a numeric vector of the implied benchmark weights. The default value is `nu.next` (in this case the benchmark is buy-and-hold).

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.

A number.

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

FreeEnergy, RelativeEntropy, EnergyEntropyDecomp

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)

Loading required package: zoo

Attaching package: 'zoo'

The following objects are masked from 'package:base':

    as.Date, as.Date.numeric

[1] -0.150876