The Maximum Entropy Principle and the Modern Portfolio Theory

Ailton Cassetari ()
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Ailton Cassetari: Banco Sudameris-Brasil S/A

Brazilian Review of Finance, 2003, vol. 1, issue 2, 271-300

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.

Keywords: asset alocation; portfolio optimization; risk measures (search for similar items in EconPapers)
JEL-codes: C61 G11 G14 (search for similar items in EconPapers)
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:brf:journl:v:1:y:2003:i:2:p:271-300

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