Evolutionary portfolio selection with liquidity shocks

This paper analyzes the behavior of insurance 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 on investment strategies. Moreover, we characterize trading strategies that are evolutionary stable, i.e., able to drive out any mutation. We study the existence of such strategies and the conditions under which financial and insurance markets are stable.