The Maximum Entropy Principle and the Modern Portfolio Theory
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Abstract
In this work, a capital allocation methodology base don the Principle of Maximum Entropy was developed. The Shannons entropy is used as a measure, concerning the Modern Portfolio Theory, are also discuted. Particularly, the methodology is tested making a systematic comparison to: 1) the mean-variance (Markovitz) approach and 2) the mean VaR approach (capital allocations based on the Value at Risk concept). In principle, such confrontations show the plausibility and effectiveness of the developed method.
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How to Cite
Cassetari, A. (2003). The Maximum Entropy Principle and the Modern Portfolio Theory. Brazilian Review of Finance, 1(2), pp. 271–300. https://doi.org/10.12660/rbfin.v1n2.2003.1131
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Long Paper
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