Evolutionary finance: A model with endogenous asset payoffs

28 Pages Posted: 22 Dec 2022 Last revised: 13 Jan 2023

See all articles by Igor V. Evstigneev

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

Mohammad Javad Vanaei

University of Manchester

Date Written: December 12, 2022

Abstract

Evolutionary Finance (EF) explores financial markets 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 (in one sense or another) investment strategies. The problem is analyzed in a framework combining stochastic dynamics and evolutionary game theory. Most of the models currently considered in EF assume that asset payoffs are exogenous and depend only on the underlying stochastic process of states of the world. The present work develops a model where the payoffs are endogenous: they depend on the share of total market wealth invested in the asset.

Suggested Citation

Evstigneev, Igor V. and Hens, Thorsten and Vanaei, Mohammad Javad, Evolutionary finance: A model with endogenous asset payoffs (December 12, 2022). Swiss Finance Institute Research Paper No. 22-96, Available at SSRN: https://ssrn.com/abstract=4308736 or http://dx.doi.org/10.2139/ssrn.4308736

Igor V. Evstigneev

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

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Thorsten Hens (Contact Author)

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

Plattenstrasse 32
Zurich, 8032
Switzerland
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Norwegian School of Economics and Business Administration (NHH)

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Bergen, 5045
Norway

Swiss Finance Institute

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CH-1211 Geneva 4
Switzerland

Mohammad Javad Vanaei

University of Manchester ( email )

Oxford Road
Manchester, N/A M13 9PL
United Kingdom

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