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Missing Information and Asset Allocation

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  • Jean-Philippe Bouchaud

    (CEA Saclay
    Science & Finance)

  • Marc Potters

    (Science & Finance)

  • Jean-Pierre Aguilar

    (Science & Finance)

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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File URL: http://arxiv.org/pdf/cond-mat/9707042
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Bibliographic Info

Paper provided by arXiv.org in its series Papers with number cond-mat/9707042.

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Date of creation: Jul 1997
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Handle: RePEc:arx:papers:cond-mat/9707042

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Web page: http://arxiv.org/

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Cited by:
  1. Kolm, Petter N. & Tütüncü, Reha & Fabozzi, Frank J., 2014. "60 Years of portfolio optimization: Practical challenges and current trends," European Journal of Operational Research, Elsevier, vol. 234(2), pages 356-371.
  2. Frahm, Gabriel & Wiechers, Christof, 2011. "On the diversification of portfolios of risky assets," Discussion Papers in Statistics and Econometrics 2/11, University of Cologne, Department for Economic and Social Statistics.
  3. A. Dionisio & R. Menezes & D. A. Mendes, 2006. "An econophysics approach to analyse uncertainty in financial markets: an application to the Portuguese stock market," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 50(1), pages 161-164, 03.

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