entropy-based restrictions on SDFs, and its correlated multiplicative components, to evaluate asset pricing models …. Specifically, our entropy bound on the square of the SDFs is intended to capture the time-variation in the conditional volatility … of the log SDF as well as distributional non-normalities. Each entropy bound can be inferred from the mean and the …

which partitions the state space and applies the cross-entropy method to each partition. We investigate two versions of our …