Shannon Index
From Open Risk Manual
Definition
For the purpose of measuring name or sector concentration, the Shannon Index (also entropy index) is defined as the sum product of relative portfolio shares of the exposures, times the natural logarithm of the exposures.
Details
More precisely, if we have n exposures summing up to a total exposure of
where each exposure fraction is defined as
then the Shannon index is defined as
Usage
None
Variations
None
Issues and Challenges
None
Implementation
Open Source implementations of the Shannon index are available in
- the Python library Concentration Library
See Also
References
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