Entropy and Optimization of Portfolios

Abstract

We briefly review the approach to optimization of portfolios according to the theory of Markowitz and propose a further modification that can improve the outcome of the optimization process. The modification takes account of the entropic contribution from the time series used to compute the parameters in the Markowitz method.

7 figures, 6 pages

References in corpus (2)

• Generalized entropy arising from a distribution of q-indices
• Risk evaluation with enhaced covariance matrix