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An Evolutionary Finance Model with a Risk-Free Asset

21 Pages Posted: 13 Oct 2017  

Sergei Belkov

University of Manchester

Igor V. Evstigneev

University of Manchester - Economics, School of Social Sciences

Thorsten Hens

University of Zurich - Department of Banking and Finance; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute (Zurich Center)

Date Written: October 11, 2017

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.

Keywords: Evolutionary finance, Survival portfolio rules, Risk-free asset, Random dynamical systems.

JEL Classification: C73, D52, G11.

Suggested Citation

Belkov, Sergei and Evstigneev, Igor V. and Hens, Thorsten, An Evolutionary Finance Model with a Risk-Free Asset (October 11, 2017). Swiss Finance Institute Research Paper No. 17-31. Available at SSRN: https://ssrn.com/abstract=3051037

Sergei Belkov

University of Manchester ( email )

Manchester
United Kingdom

Igor Evstigneev

University of Manchester - Economics, School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom
+44 161 2754275 (Phone)
+44 161 2754812 (Fax)

HOME PAGE: http://www.evstigneev.net

Thorsten Hens (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 32
Zurich, 8032
Switzerland
+41-44 634 37 06 (Phone)

Norwegian School of Economics and Business Administration (NHH)

Helleveien 30
Bergen, 5045
Norway

Swiss Finance Institute (Zurich Center)

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

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