Entropic Data Envelopment Analysis: A Diversification Approach for Portfolio Optimization
Recently, different methods have been proposed for portfolio optimization and decision making on investment issues. This article aims to present a new method for portfolio formation based on Data Envelopment Analysis (DEA) and Entropy function. This new portfolio optimization method applies DEA in a...
| Main Authors: | , , , , , |
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| Format: | Article |
| Language: | English |
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MDPI AG
2017-09-01
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| Series: | Entropy |
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| Online Access: | https://www.mdpi.com/1099-4300/19/9/352 |
| _version_ | 1817989626832355328 |
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| author | Paulo Rotela Junior Luiz Célio Souza Rocha Giancarlo Aquila Pedro Paulo Balestrassi Rogério Santana Peruchi Liviam Soares Lacerda |
| author_facet | Paulo Rotela Junior Luiz Célio Souza Rocha Giancarlo Aquila Pedro Paulo Balestrassi Rogério Santana Peruchi Liviam Soares Lacerda |
| author_sort | Paulo Rotela Junior |
| collection | DOAJ |
| description | Recently, different methods have been proposed for portfolio optimization and decision making on investment issues. This article aims to present a new method for portfolio formation based on Data Envelopment Analysis (DEA) and Entropy function. This new portfolio optimization method applies DEA in association with a model resulting from the insertion of the Entropy function directly into the optimization procedure. First, the DEA model was applied to perform a pre-selection of the assets. Then, assets given as efficient were submitted to the proposed model, resulting from the insertion of the Entropy function into the simplified Sharpe’s portfolio optimization model. As a result, an improved asset participation was provided in the portfolio. In the DEA model, several variables were evaluated and a low value of beta was achieved, guaranteeing greater robustness to the portfolio. Entropy function has provided not only greater diversity but also more feasible asset allocation. Additionally, the proposed method has obtained a better portfolio performance, measured by the Sharpe Ratio, in relation to the comparative methods. |
| first_indexed | 2024-04-14T00:48:43Z |
| format | Article |
| id | doaj.art-44bdefdeea2c459598e9b8b3fbb96649 |
| institution | Directory Open Access Journal |
| issn | 1099-4300 |
| language | English |
| last_indexed | 2024-04-14T00:48:43Z |
| publishDate | 2017-09-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Entropy |
| spelling | doaj.art-44bdefdeea2c459598e9b8b3fbb966492022-12-22T02:21:52ZengMDPI AGEntropy1099-43002017-09-0119935210.3390/e19090352e19090352Entropic Data Envelopment Analysis: A Diversification Approach for Portfolio OptimizationPaulo Rotela Junior0Luiz Célio Souza Rocha1Giancarlo Aquila2Pedro Paulo Balestrassi3Rogério Santana Peruchi4Liviam Soares Lacerda5Production Engineering Department, Universidade Federal da Paraíba, João Pessoa 58051-900, PB, BrazilInstitute of Production Engineering and Management, Universidade Federal de Itajubá, Itajubá 37500-903, MG, BrazilInstitute of Production Engineering and Management, Universidade Federal de Itajubá, Itajubá 37500-903, MG, BrazilInstitute of Production Engineering and Management, Universidade Federal de Itajubá, Itajubá 37500-903, MG, BrazilProduction Engineering Department, Universidade Federal da Paraíba, João Pessoa 58051-900, PB, BrazilProduction Engineering Department, Universidade Federal da Paraíba, João Pessoa 58051-900, PB, BrazilRecently, different methods have been proposed for portfolio optimization and decision making on investment issues. This article aims to present a new method for portfolio formation based on Data Envelopment Analysis (DEA) and Entropy function. This new portfolio optimization method applies DEA in association with a model resulting from the insertion of the Entropy function directly into the optimization procedure. First, the DEA model was applied to perform a pre-selection of the assets. Then, assets given as efficient were submitted to the proposed model, resulting from the insertion of the Entropy function into the simplified Sharpe’s portfolio optimization model. As a result, an improved asset participation was provided in the portfolio. In the DEA model, several variables were evaluated and a low value of beta was achieved, guaranteeing greater robustness to the portfolio. Entropy function has provided not only greater diversity but also more feasible asset allocation. Additionally, the proposed method has obtained a better portfolio performance, measured by the Sharpe Ratio, in relation to the comparative methods.https://www.mdpi.com/1099-4300/19/9/352entropydiversificationData Envelopment Analysisportfolios |
| spellingShingle | Paulo Rotela Junior Luiz Célio Souza Rocha Giancarlo Aquila Pedro Paulo Balestrassi Rogério Santana Peruchi Liviam Soares Lacerda Entropic Data Envelopment Analysis: A Diversification Approach for Portfolio Optimization Entropy entropy diversification Data Envelopment Analysis portfolios |
| title | Entropic Data Envelopment Analysis: A Diversification Approach for Portfolio Optimization |
| title_full | Entropic Data Envelopment Analysis: A Diversification Approach for Portfolio Optimization |
| title_fullStr | Entropic Data Envelopment Analysis: A Diversification Approach for Portfolio Optimization |
| title_full_unstemmed | Entropic Data Envelopment Analysis: A Diversification Approach for Portfolio Optimization |
| title_short | Entropic Data Envelopment Analysis: A Diversification Approach for Portfolio Optimization |
| title_sort | entropic data envelopment analysis a diversification approach for portfolio optimization |
| topic | entropy diversification Data Envelopment Analysis portfolios |
| url | https://www.mdpi.com/1099-4300/19/9/352 |
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