Continuous-Time Evolutionary Stock and Bond Markets with Time-Dependent Strategies
Hunan University - School of Finance and Statistics
China University of Petroleum, Beijng - Business school
December 26, 2008
This paper develops a general continuous-time evolutionary finance model with time-dependent strategies. It is shown that the continuous model, which is a limit of a general discrete model, is well-defined and if there exists one completely diversified strategy in the market, then there is no sudden bankruptcy. After that a deterministic evolutionary bond market is studied in detail. It is certified that a bond market is evolutionary stable, which is equal to arbitrage-free if and only if the total returns defined in this paper across all the assets are the same, or each bond is evaluated by an improper integral in which the integrand is a discounted value of the dividend payoff with the discount rate being market consumption parameter. Last an approach to compute the benchmark interest rate is provided.
Number of Pages in PDF File: 19
Keywords: Continuous Evolutionary Finance, Time-dependent Strategy, Evolutionary Stable Bond Market, Bond Valuation, Benchmark Interest Rate
JEL Classification: D59, G11, G12working papers series
Date posted: January 21, 2008 ; Last revised: January 13, 2012
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