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An evolutionary finance model with a risk-free asset

Author

Listed:
  • Sergei Belkov

    (University of York)

  • Igor V. Evstigneev

    (University of Manchester)

  • Thorsten Hens

    (University of Zurich, and Swiss Finance Institute
    Norwegian School of Economics
    University of Lucerne)

Abstract

The purpose of this work is to develop an evolutionary finance model with a risk-free asset playing the role of a numeraire. The model describes a market where one risk-free and several “short-lived” risky assets (securities) are traded in discrete time. The risky securities live one period, yield random payoffs at the end of it, and then are re-born at the beginning of the next period. The main goal of the study is to identify investment strategies that make it possible for an investor to “survive” in the market selection process. It is shown that a strategy of this kind exists, is in a sense asymptotically unique and can be described by a simple explicit formula amenable for quantitative investment analysis.

Suggested Citation

  • Sergei Belkov & Igor V. Evstigneev & Thorsten Hens, 2020. "An evolutionary finance model with a risk-free asset," Annals of Finance, Springer, vol. 16(4), pages 593-607, December.
    • Handle: RePEc:kap:annfin:v:16:y:2020:i:4:d:10.1007_s10436-020-00370-4
    DOI: 10.1007/s10436-020-00370-4
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    References listed on IDEAS

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    3. Mikhail Zhitlukhin, 2021. "Capital growth and survival strategies in a market with endogenous prices," Papers 2101.09777, arXiv.org.

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    More about this item

    Keywords

    Evolutionary finance; Survival portfolio rules; Risk-free asset; Numeraire; Random dynamical systems;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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