Portfolio optimization with entropy measure

Abstract

In portfolio management, the selection of portfolio weights has received considerable interest. Considering the expected return, risk and uncertainty, the portfolio distribution is to be determined. The maximum entropy (MaxEnt) principle is one of the efficient methods to find distribution of random variables. Thus, in this study, the maximum entropy (MaxEnt) principle is presented as an alternative method of determination of portfolios distribution. Beside, a numerical example is also presented to illustrate this principle.