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An Evolutionary Finance Model with a Risk-Free Asset

Author

Listed:
  • Sergei Belkov

    (University of Manchester)

  • Igor V. Evstigneev

    (University of Manchester)

  • Thorsten Hens

    (University of Zurich, Norwegian School of Economics and Business Administration (NHH), and Swiss Finance Institute)

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 identically 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, 2017. "An Evolutionary Finance Model with a Risk-Free Asset," Swiss Finance Institute Research Paper Series 17-28, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1728
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    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3051037
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    Citations

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    Cited by:

    1. Yaroslav Drokin & Mikhail Zhitlukhin, 2020. "Relative growth optimal strategies in an asset market game," Annals of Finance, Springer, vol. 16(4), pages 529-546, December.
    2. Mikhail Zhitlukhin, 2020. "Asymptotic minimization of expected time to reach a large wealth level in an asset market game," Papers 2007.04909, arXiv.org.
    3. Yaroslav Drokin & Mikhail Zhitlukhin, 2019. "Relative growth optimal strategies in an asset market game," Papers 1908.01171, arXiv.org, revised Jul 2020.
    4. Mikhail Zhitlukhin, 2021. "Capital growth and survival strategies in a market with endogenous prices," Papers 2101.09777, arXiv.org.

    More about this item

    Keywords

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

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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