 Evolutionary Portfolio Selection with Liquidity ShocksNo 185, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich Abstract: Insurance companies invest their wealth in financial markets. The wealth evolution strongly depends on the success of their investment strategies, but also on liquidity shocks which occur during unfavourable years, when indemnities to be paid to the clients exceed collected premia. An investment strategy that does not take liquidity shocks into account, exposes insurance companies to the risk of bankruptcy, when liquidity shocks and low investment payoffs jointly appear. Therefore, regulatory au- thorities impose solvency restrictions to ensure that insurance companies are able to face their obligations with high probability. This paper analyses the behaviour of in- surance companies in an evolutionary framework. We show that an insurance company that merely satisfies regulatory constraints will eventually vanish from the market. We give a more restrictive no bankruptcy condition for the investment strategies and we characterize trading strategies that are evolutionary stable, i.e. able to drive out any mutation. Keywords: insurance; portfolio theory; evolutionary finance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:zur:iewwpx:185 Access Statistics for this paper More papers in IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich |
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