A new measure of indeterminacy for uncertain variables with application to portfolio selection

Abstract

Entropy is a measure for characterizing indeterminacy of a random variable or an uncertain variable with respect to probability theory and uncertainty theory, respectively. In order to characterize indeterminacy of uncertain variables, the concept of exponential entropy for uncertain variables is proposed. For computing the exponential entropy for uncertain variables, a formula is derived via inverse uncertainty distribution. As an application of exponential entropy, portfolio selection problems for uncertain returns are optimized via exponential entropy-mean models. For better understanding, several examples are provided.