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What is entropic risk measure?

Entropic risk measure

This is a term used in financial mathematics. It's a risk measure that depends on the risk aversion of the individual, meaning it provides different values for investors who have different attitudes towards risk.

Where have you heard about entropic risk measure?

If you've studied financial mathematics, you might have heard of it used as an alternative to other risk measures such as value at risk or expected shortfall.

What you need to know about entropic risk measure.

It's a difficult theory to use in practice, because it's hard to measure someone's individual aversion to risk. Risk measures are designed to predict investment risk and volatility and there are many different types that can be used alone or together to assess the risk of an investment. However, entropic risk measure is described as an example of a convex risk measure that is not coherent.

Find out more about entropic risk measure.

To learn more about this type of concept, see our guide to entropic value at risk.

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