Monday 17 June 2024

Maximum Entropy Risk Model for Investment Management


Abstract

In the present communication Markowitz’s method of mean- variance efficient frontier has been explained. Some introductory entropy models and concepts related to risk in investments have been discussed. Risk aversion index and Pareto-optimal sharing of risk have been defined. A new measure of risk based on maximum entropy principle has been studied in detail. Mathematics Subject Classification 2000: 91b24 and 94a15.

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