Von Neumann-Gale Model, Market Frictions, and Capital Growth

40 Pages Posted: 15 Jan 2019

See all articles by Esmaeil Babaei

Esmaeil Babaei

University of Manchester, Faculty of Humanities, School of Social Sciences, Department of Economics, Students

Igor V. Evstigneev

University of Manchester - Economics, School of Social Sciences

Klaus Reiner Schenk-Hoppé

University of Manchester - Department of Economics; Norwegian School of Economics (NHH) - Department of Finance

Mikhail Zhitlukhin

Steklov Mathematical Institute

Date Written: January 13, 2019

Abstract

The aim of this work is to extend the classical capital growth theory pertaining to frictionless financial markets to models taking into account various kinds of frictions, including transaction costs and portfolio constraints. A natural generalization of the notion of a benchmark investment strategy (Platen, Heath and others) is proposed, and it is shown how such strategies can be used for the analysis of growth-optimal investments. The analysis is based on the classical von Neumann-Gale model of economic growth, a stochastic version of which is used in this study as a framework for the modeling of financial markets with frictions.

Keywords: capital growth theory, transaction costs, benchmark strategies, numeraire portfolios, random dynamical systems, convex multivalued operators, von Neumann-Gale dynamical systems, rapid paths

JEL Classification: C61, C62, O41, G10

Suggested Citation

Babaei, Esmaeil and Evstigneev, Igor V. and Schenk-Hoppé, Klaus Reiner and Zhitlukhin, Mikhail, Von Neumann-Gale Model, Market Frictions, and Capital Growth (January 13, 2019). Available at SSRN: https://ssrn.com/abstract=3314852 or http://dx.doi.org/10.2139/ssrn.3314852

Esmaeil Babaei

University of Manchester, Faculty of Humanities, School of Social Sciences, Department of Economics, Students ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

Igor V. Evstigneev (Contact Author)

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

Klaus Reiner Schenk-Hoppé

University of Manchester - Department of Economics ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

Mikhail Zhitlukhin

Steklov Mathematical Institute ( email )

Gubkina St. 8
Moscow, 119991
Russia

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