Академический Документы
Профессиональный Документы
Культура Документы
Jan Palczewski
Faculty of Mathematics
University of Warsaw
and
School of Mathematics
University of Leeds
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 1 / 16
Motivation
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 2 / 16
Classical continuous-time finance
Investors are price-takers
Trades have no impact on the market
Dynamics of asset prices are given by a stochastic
process, e.g.
St = S0 exp(µt + σBt ).
There is infinite supply of financial assets
There is infinite divisibility of financial assets
Standing assumption
Small investors!!!
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 3 / 16
Large trader and large trades
Limitations
only one large trader
trader’s impact on the market is ad-hoc specified
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 4 / 16
Equilibrium with heterogeneous agents
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 5 / 16
The Market
Asset k k = 1, 2
Price Sk (t)
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 6 / 16
The Market
Asset k k = 1, 2
Price Sk (t)
Investor i i = 1, 2
Portfolio
Wealth V i (t)
number of shares of asset k:
Consumption rate cV i (t)
λik V i (t)
Constant proportions Sk (t)
trading strategy (λi1 , λi2 )
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 6 / 16
Wealth dynamics
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 7 / 16
Wealth dynamics
Capital gains
2
X λik V i (t)
dSk (t)
Sk (t)
k =1
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 7 / 16
Wealth dynamics
2 2
X λik V i (t) X λik V i (t)
dSk (t) dDk (t)
Sk (t) Sk (t)
k =1 k =1
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 7 / 16
Wealth dynamics
2 2
X λik V i (t) X λik V i (t)
dSk (t) dDk (t) cV i (t)dt
Sk (t) Sk (t)
k =1 k =1
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 7 / 16
Wealth dynamics
2
X λik V i (t)
dV i (t) = dSk (t) + dDk (t) − cV i (t)dt
Sk (t)
k =1
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 7 / 16
Market clearing
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 8 / 16
Price formation
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 9 / 16
Price formation
Theorem
1 (0), V 2 (0) there exists a unique
1 For any feasible V
V 1 (t), V 2 (t) satisfying wealth dynamics and market
clearing condition.
2 Asset price dynamics are given by
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 10 / 16
Markovian dividend intensities
δ1 (t)
Relative dividend intensity ρ(t) = ∈ [0, 1]
δ1 (t) + δ2 (t)
Assumptions
1 ρ(t) is a positively recurrent Markov process
2 its state space is countable
3 its initial distribution is stationary (stationary economy)
Theorem
Relative dividend intensity process is ergodic:
Z t
1
lim ρ(s)ds = Eρ(0).
t→∞ t 0
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 11 / 16
Selection dynamics
Theorem
If investor 1 follows strategy
Remarks
1 Π∗ is based on fundamental valuation.
2 Relative wealth of investor 2 converges to zero.
3 At odds with findings in discrete-time evolutionary models
(Evstigneev, Hens, Schenk-Hoppé).
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 12 / 16
Price dynamics
If one of the investors follows trading strategy Π∗ then asset
prices converge:
1 t S1 (s)
Z
lim ds = Eρ(0).
t→∞ t 0 S1 (s) + S2 (s)
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 13 / 16
Price dynamics
If one of the investors follows trading strategy Π∗ then asset
prices converge:
1 t S1 (s)
Z
lim ds = Eρ(0).
t→∞ t 0 S1 (s) + S2 (s)
Remarks
1 Fundamental valuation comes as a result of computing
average historical payoffs.
2 Our valuation is a fundamentally different benchmark.
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 13 / 16
Almost sure convergence
Assumption
For every state x
Ex (τx )2 < ∞.
Theorem
1 If investor 1 follows strategy Π∗ and investor 2 follows a
strategy (λ21 , λ22 ) 6= Π∗ then
V 1 (t)
lim = 1 a.s.
t→∞ V 1 (t) + V 2 (t)
S1 (t)
lim = Eρ(0) a.s.
t→∞ S1 (t) + S2 (t)
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 14 / 16
Proof
What we hoped to do
Linearization and Lagrange multipliers
Multiplicative Ergodic Theorem
Why? It works fine in discrete-time.
Continous-time setting supprised us. Lagrange multiplier at
the steady state is zero!
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 15 / 16
Summary
Open problems
Time varying investment strategies
More agents
Jan Palczewski On the Wealth Dynamics under Endogeneous Prices AMaMeF 2007, Vienna 16 / 16