Evolution in Pecunia

32 Pages Posted: 5 Jun 2020 Last revised: 10 Jun 2020

See all articles by Rabah Amir

Rabah Amir

University of Iowa - Henry B. Tippie College of Business - Department of Economics; Universidad de los Andes, Chile - School of Business and Economics

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

Valeriya Potapova

University of Manchester - Department of Economics

Klaus Reiner Schenk-Hoppé

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

Date Written: May 29, 2020

Abstract

The paper models evolution in pecunia—in the realm of finance. Financial markets are explored as evolving biological systems. Investors pursuing diverse investment strategies compete for the market capital. Some `survive' and some `become extinct.' A central goal is to identify evolutionary stable, i.e. guaranteeing survival, investment strategies. The problem is studied in a framework combining stochastic dynamics and evolutionary game theory. The model proposed employs only objectively observable market data, in contrast with traditional settings relying upon unobservable investors characteristics (utilities and beliefs). The main result is a construction of an evolutionary stable strategy in the model at hand.

Keywords: Evolutionary finance, financial markets, evolutionarily stable investment strategies, survival, stochastic dynamics, local stability

JEL Classification: C73, G11

Suggested Citation

Amir, Rabah and Evstigneev, Igor V. and Hens, Thorsten and Potapova, Valeriya and Schenk-Hoppé, Klaus Reiner, Evolution in Pecunia (May 29, 2020). Swiss Finance Institute Research Paper 20-44, Available at SSRN: https://ssrn.com/abstract=3619146 or http://dx.doi.org/10.2139/ssrn.3619146

Rabah Amir

University of Iowa - Henry B. Tippie College of Business - Department of Economics ( email )

108 Pappajohn Building
Iowa City, IA 52242
United States

Universidad de los Andes, Chile - School of Business and Economics ( email )

Chile

Igor V. 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

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Valeriya Potapova

University of Manchester - Department of Economics ( email )

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

HOME PAGE: http://vpotapova.com

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

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