LINDA AND ENTROPY CONCENTRATION INDICES AS INSTRUMENTS OF CREDIT RISK MANAGEMENT

Abstract

In all the financial organizations of the world, the homogenous distribution of profitable assets receives a lot of attention. The most homogeneous distribution or diversification of assets according to economic sectors, regions or ratings enables organizations to control possible credit risks, thus ensuring their financial stability and business continuity. In our article, we will use two coefficients: Linda and Entropy coefficients, with the help of which we will get a more accurate estimate of the level of concentration. For these indicators, the easy calculation can be considered as an advantage, which stimulates managerial operative decision-making. Moreover, the Linda and Entropy coefficients provide a quantitative measure of the concentration of assets in a portfolio, which helps organizations determine the extent to which their portfolio is diversified. This is crucial for making informed investment decisions and managing risk effectively. Thus, financial organizations can ensure a well-diversified portfolio.