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MAXIMUM VARMA-TSALLIS ENTROPY BASED ON PORTFOLIO PROBLEM

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  • Elahe Razzaz Mashhadi,
  • Gholam Hossein Yari,
  • Gholam Reza Mohtashami Borzadaran
Elahe Razzaz Mashhadi
Department of Statistics, Science and Research Branch, Islamic Azad University, Tehran
Gholam Hossein Yari
Department of Statistics, Science and Research Branch, Islamic Azad University, Tehran, Iran
Gholam Reza Mohtashami Borzadaran
Department of Statistics, School of Mathematical Science, Ferdowsi University of Mashhad, Mashhad
DOI: https://doi.org/10.36253/ijas-17843

Published 2026-10-21

Keywords

  • The Principle of Diversification,
  • Portfolio Optimization,
  • Maximum Entropy Principle,
  • Renyi Entropy,
  • Tsallis Entropy

How to Cite

Mashhadi, E. R., Yari, G. H., & Mohtashami Borzadaran, G. R. (2026). MAXIMUM VARMA-TSALLIS ENTROPY BASED ON PORTFOLIO PROBLEM. Italian Journal of Applied Statistics. https://doi.org/10.36253/ijas-17843

Copyright (c) 2024 Elahe Razzaz Mashhadi, Gholam Hossein Yari, Gholam Reza Mohtashami Borzadaran

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Abstract

This paper examines the application of entropy in portfolio optimization, focusing on the Shannon and Tsallis entropy frameworks. We use these nonparametric measures to construct optimal portfolios based on an empirical function for stock returns. The models are tested and compared using a dataset of eight stocks. Our empirical results show that the maximum entropy approach produces a well-diversified portfolio. Furthermore, analysis of the Varma- Tsallis model shows that a parameter value of 1 produces a portfolio similar to the optimal Tsallis entropy. Finally, we prove that as the Tsallis entropy parameter converges to 1, the optimal portfolio weights approach those derived from Shannon entropy.

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