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HOW TO PRICE INFORMATION BY KULLBACK-LEIBLER ENTROPY AND A MOMENT-RETURN RELATION FOR PORTFOLIOS

    https://doi.org/10.1142/S0219024901001103Cited by:0 (Source: Crossref)

    A connection between the notion of information and the concept of risk and return in portfolio theory is deduced. This succeeds in two steps: A general moment-return relation for arbitrary assets is derived, thereafter the total expected return is connected to the Kullback-Leibler information. With this result the optimization problem to maximize the expected return of a portfolio consisting of n subportfolios by moment variation under a given value-at-risk constraint is solved. This yields an ansatz to price information.

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