An evolutionary financial market model with a risk-free asset
AbstractThis paper introduces and analyzes an evolutionary model of a financial market with a risk-free asset. We focus on the local stability of the wealth dynamics, applying recent results on the linearization and stability of random dynamical systems (Evstigneev, Pirogov and Schenk-Hoppé (Proceedings of the American Mathematical Society, forthcoming). Our results give conditions on the linearization of the model at an equilibrium state, ensuring local convergence of sample paths to this equilibrium. The concept of local stability is closely related to the notion of evolutionary stability. A locally evolutionarily stable investment strategy is derived.
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Bibliographic InfoPaper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 10-36.
Length: 27 pages
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Evolutionary finance; risk-free asset; local stability.;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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