SFB 303 Discussion Paper No. A - 503
Author: Bettzüge, Marc-Oliver, and Thorsten Hens
Title: An Evolutionary Approach to Financial Innovation
Abstract:his paper presents an evolutionary approach to the analysis
of innovation in financial markets. In contrast to the existing literature
on this topic, no innovating entities are considered in the evolutionary
The paper can therefore be regarded as offering an evolutionary foundation
for the strong rationality assumptions needed in the existing static models.
First, existence of the standard GEI-equilibrium is established in this
Next, an evolutionary process governing the
participation structure is superimposed and corresponding notions for
evolutionary equilibria are introduced. Finally, these equilibria are
analysed for important examples, especially for the case, where the
underlying stage economy
takes the form of a standard CAPM-economy.
Keywords: Financial innovation, Evolution, CAPM.
JEL-Classification-Number: D52, G10, O31
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