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 model studied. 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 set-up. 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
Creation-Date: 1995
URL: ../1995/a/bonnsfa503.pdf

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