From Discrete to Continuous Time Evolutionary Finance Models

Jan PALCZEWSKI and Klaus Reiner Schenk-Hoppé ()
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Jan PALCZEWSKI: University of Leeds and University of Warsaw

No 08-30, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper aims to open a new avenue for research in continuoustime financial market models with endogenous prices and heterogenous investors. The main result is the derivation of the limit of a discretetime evolutionary stock market model as the length of the time period tends to zero. The resulting explicit model in continuous time generalizes the workhorse model of mathematical finance by introducing asset prices that are driven by the market interaction of investors following self-financing trading strategies. Our approach also offers a numerical scheme for the simulation of the continuous-time model.

Keywords: evolutionary finance; market interaction; wealth dynamics; self-financing strategies; endogenous prices. (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)

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Persistent link: http://EconPapers.repec.org/RePEc:chf:rpseri:rp0830

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