ENTROPY-DRIVEN PORTFOLIO SELECTION : a downside and upside risk framework

In modern portfolio theory like that of Markowitz or Sharpe the investor follows amean/variance-rationality. Even the founders of this theory observed unsatisfactory resultsbecause of symmetrical risk measures like variance or standard deviation. Post-modern theorythen considers downside risk measures and takes into consideration the investor’s specificgoals. In this contribution we follow these ideas, but use an information theoretical inferencemechanism under Maximum Entropy and Minimum Relative Entropy, respectively...