Continuous-Time Evolutionary Stock and Bond Markets with Time-Dependent Strategies

19 Pages Posted: 21 Jan 2008 Last revised: 13 Jan 2012

See all articles by Zhaojun Yang

Zhaojun Yang

Southern University of Science and Technology - Department of Finance

Feng Shi

China University of Petroleum, Beijng - Business school

Date Written: December 26, 2008

Abstract

This paper develops a general continuous-time evolutionary finance model with time-dependent strategies. It is shown that the continuous model, which is a limit of a general discrete model, is well-defined and if there exists one completely diversified strategy in the market, then there is no sudden bankruptcy. After that a deterministic evolutionary bond market is studied in detail. It is certified that a bond market is evolutionary stable, which is equal to arbitrage-free if and only if the total returns defined in this paper across all the assets are the same, or each bond is evaluated by an improper integral in which the integrand is a discounted value of the dividend payoff with the discount rate being market consumption parameter. Last an approach to compute the benchmark interest rate is provided.

Keywords: Continuous Evolutionary Finance, Time-dependent Strategy, Evolutionary Stable Bond Market, Bond Valuation, Benchmark Interest Rate

JEL Classification: D59, G11, G12

Suggested Citation

Yang, Zhaojun and Shi, Feng, Continuous-Time Evolutionary Stock and Bond Markets with Time-Dependent Strategies (December 26, 2008). Available at SSRN: https://ssrn.com/abstract=1085513 or http://dx.doi.org/10.2139/ssrn.1085513

Zhaojun Yang (Contact Author)

Southern University of Science and Technology - Department of Finance ( email )

No 1088, Xueyuan Rd.
District of Nanshan
Shenzhen, Guangdong 518055
China

HOME PAGE: http://faculty.sustc.edu.cn/profiles/yangzj

Feng Shi

China University of Petroleum, Beijng - Business school ( email )

Beijing, 102600
China

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