Von Neumann-Gale Model, Market Frictions, and Capital Growth

Esmaeil Babaei, Igor V. Evstigneev, Klaus Reiner Schenk-hoppé, Mikhail Zhitlukhin

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Abstract

The aim of this work is to extend the classical capital growth theory pertaining to frictionless nancial markets to models taking into account various kinds of frictions, including transaction costs and portfolio constraints. A natural generalization of the notion of a benchmark investment strategy (Platen, Heath and others) is proposed, and it is shown how such strategies can be used for the analysis of growth-optimal investments. The analysis is based on the classical von Neumann-Gale model of economic growth, a stochastic version of which is used in this study as a framework for the modeling of nancial markets with frictions. [The paper was received and accepted by the Editor on the same date: 15 Jan 2020.]
Original languageEnglish
JournalStochastics
Early online date31 Jan 2020
DOIs
Publication statusPublished - 2020

Keywords

  • Capital growth theory
  • transaction costs
  • random dynamical systems
  • convex multivalued operators
  • von Neumann-Gale dynamical systems
  • rapid paths

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