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An evolutionary financial market model with a risk-free asset

Author

Listed:
  • Igor V. EVSTIGNEEVY

    (University of Manchester)

  • Thorsten HENS

    (University of Zurich and Swiss Finance Institute)

  • Klaus Reiner SCHENK-HOPPE

    (University of Leeds)

Abstract

This 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.

Suggested Citation

  • Igor V. EVSTIGNEEVY & Thorsten HENS & Klaus Reiner SCHENK-HOPPE, 2010. "An evolutionary financial market model with a risk-free asset," Swiss Finance Institute Research Paper Series 10-36, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1036
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Evolutionary finance; risk-free asset; local stability.;
    All these keywords.

    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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