An evolutionary financial market model with a risk-free asset

Igor V. Evstigneevy, Thorsten Hens and Klaus Schenk-Hoppé
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Igor V. Evstigneevy: University of Manchester
Thorsten Hens: University of Zurich and Swiss Finance Institute

No 10-36, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

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.

Keywords: Evolutionary finance; risk-free asset; local stability. (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2010-08
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1036

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