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Applications of Entropy in Finance: A Review
School of Economics and Management, Beijing University of Chemical Technology, Beijing 100029, China
* Author to whom correspondence should be addressed.
Received: 27 September 2013; in revised form: 20 October 2013 / Accepted: 30 October 2013 / Published: 11 November 2013
Abstract: Although the concept of entropy is originated from thermodynamics, its concepts and relevant principles, especially the principles of maximum entropy and minimum cross-entropy, have been extensively applied in finance. In this paper, we review the concepts and principles of entropy, as well as their applications in the field of finance, especially in portfolio selection and asset pricing. Furthermore, we review the effects of the applications of entropy and compare them with other traditional and new methods.
Keywords: entropy; finance; the principle of maximum entropy; applications; portfolio selection; asset pricing
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Cite This Article
MDPI and ACS Style
Zhou, R.; Cai, R.; Tong, G. Applications of Entropy in Finance: A Review. Entropy 2013, 15, 4909-4931.
Zhou R, Cai R, Tong G. Applications of Entropy in Finance: A Review. Entropy. 2013; 15(11):4909-4931.
Zhou, Rongxi; Cai, Ru; Tong, Guanqun. 2013. "Applications of Entropy in Finance: A Review." Entropy 15, no. 11: 4909-4931.