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Missing Information and Asset Allocation

Jean-Philippe Bouchaud·Marc Potters·Jean-Pierre Aguilar
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Abstract

When the available statistical information is imperfect, it is dangerous to follow standard optimisation procedures to construct an optimal portfolio, which usually leads to a strong concentration of the weights on very few assets. We propose a new way, based on generalised entropies, to ensure a minimal degree of diversification.

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Jean-Philippe Bouchaud, Marc Potters, Jean-Pierre Aguilar. 1997-07-04. Missing Information and Asset Allocation. https://arxiv.org/abs/cond-mat/9707042

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