Applied Research Of Entropy Model In Risk Management Of Stock Investment

China has successfully joined in the WTO in 2001,and its economic connected with the word completely.The financial markets of China has developed rapidly but faces the tremendous volatility never encountered before at the same time because of economic globalization and financial integration.Chinese stock market is in its primary stage and confronts with more acuity volatility.The stock market is a not only high received but also high risk market,and the Chinese stock market is more rising and prompt developmental and unstable,and its risk problem is quite stand out,therefore,it is so important that risk of the Chinese stock market be monitored scientifically and managed normatively.In risk management of the stock market,it is a blind alley to copy the international risk management means,and a modern and scientific and systematic management tools is so scarce in China.The practitioner would have an evidence to follow if an accurate and efficient risk measure method could be created,and it is useful to the Chinese finance order and healthy development of the national economy.The risk in the stock market has been analyzed deeply and the entropy model been introduced in this paper,which is a risk management model,by drawing the international advanced experience and studying China's national conditions.And the risk of 50 stocks in the Shanghai Stock Exchange of China have been measured by the entropy method in order to test the practicality of it.The investment income interval has been divided into number of small intervals, and after the stock state probability was substituted for the stocks return frequency that fall in these small intervals,the entropy of the 50 stocks has been get,and the stability of the stocks has been assessed.The result of research shows that the entropy model does a good job in risk measure,and the entropy value has been stable and reached its ideal state when the number of small intervals equivalent to 320.And the entropy model is very effective to discriminate the stability of stocks returns,and accurate to the measurement of the risk stocks and objective and efficient to the assessment of stock performance.The entropy model performs well in sorting stocks based on the entropy value comparing with other methods as well.To sum up,entropy model is such a practical and accurate and convenient and effective means to measure and manage the risk of stocks,we can affirm that the entropy model would play an important role in the risk management of investment portfolio in the near future.