Missing information and asset allocation

4 July 1997

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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.

Authors

Marc Potters , Jean-Pierre Aguilar , Jean-Philippe Bouchaud