Palczewski, J and Schenk-Hoppe, KR (2010) From discrete to continuous time evolutionary finance. Journal of Economic Dynamics and Control, 34 (5). 913 - 931. ISSN 0165-1889
Abstract
This paper aims to open a new avenue for research in continuous-time financial market models with endogenous prices and heterogenous investors. To this end we introduce a discrete-time evolutionary stock market model that accommodates time periods of arbitrary length. The dynamics is time-consistent and allows the comparison of paths with different frequency of trade. The main result in this paper is the derivation of the limit model as the length of the time period tends to zero. The resulting model in continuous time generalizes the workhorse model of mathematical finance by introducing asset prices that are driven by the market interaction of investors following self-financing trading strategies. Our approach also offers a numerical scheme for the simulation of the continuous-time model that satisfies constraints such as market clearing at every time step. An illustration is provided.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2010, Elsevier. This is an author produced version of a paper published in Journal of Economic Dynamics and Control. Uploaded in accordance with the publisher's self-archiving policy. |
Keywords: | Evolutionary finance; market interaction; wealth dynamics; self-financing strategies; endogenous prices; continuous-time limit |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Engineering & Physical Sciences (Leeds) > School of Mathematics (Leeds) > Applied Mathematics (Leeds) |
Depositing User: | Symplectic Publications |
Date Deposited: | 10 Jun 2014 11:48 |
Last Modified: | 23 Jan 2018 20:16 |
Published Version: | http://dx.doi.org/10.1016/j.jedc.2009.12.005 |
Status: | Published |
Publisher: | Elsevier |
Identification Number: | 10.1016/j.jedc.2009.12.005 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:79163 |