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Entropy 2013, 15(11), 4909-4931; doi:10.3390/e15114909

Applications of Entropy in Finance: A Review

School of Economics and Management, Beijing University of Chemical Technology, Beijing 100029, China
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Received: 27 September 2013 / Revised: 20 October 2013 / Accepted: 30 October 2013 / Published: 11 November 2013
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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 entropy; finance; the principle of maximum entropy; applications; portfolio selection; asset pricing
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This is an open access article distributed under the Creative Commons Attribution License (CC BY 3.0).

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MDPI and ACS Style

Zhou, R.; Cai, R.; Tong, G. Applications of Entropy in Finance: A Review. Entropy 2013, 15, 4909-4931.

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