An evolutionary finance model with a risk-free asset

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 r...

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Published in:Annals of finance 2020-12, Vol.16 (4), p.593-607
Main Authors: Belkov, Sergei, Evstigneev, Igor V., Hens, Thorsten
Format: Article
Language:English
Subjects:
Economic Theory/Quantitative Economics/Mathematical Methods
Economics and Finance
Finance
Investment policy
Macroeconomics/Monetary Economics//Financial Economics
Quantitative Finance
Research Article
Risk management
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description 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 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.
doi_str_mv 10.1007/s10436-020-00370-4
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subjects Economic Theory/Quantitative Economics/Mathematical Methods
Economics and Finance
Finance
Investment policy
Macroeconomics/Monetary Economics//Financial Economics
Quantitative Finance
Research Article
Risk management
title An evolutionary finance model with a risk-free asset
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