In this article we want to predict the dynamic behaviour of a portfolio of assets, i.e., we want to know how quickly it will move towards anew position of equilibrium when an unstable situation has ocurred due to important changes in the risk, (and in some cases in the return) of the securities. In order to carry out this forecast, first we should locate the points of equilibrium, then analyse their stability and lastly determine where, and under what conditions, the discontinuities appear.Changes in the return or in the risk of the securities which make up a portfolio can be smooth and this also brings about a smooth change in the portfolio, which is shown in a readjustment in its composition. However, it sometimes happens that, while the expectation of return remains relatively stable, circumstances arise which considerably increase the risk, in which case a serious discontinuity occurrs in the feature of the portfolio.In this way, we can apply the methodology of Thom's Theory of Catastrophes in order to obtain valid conclusions using the morphology of the butterfly catastrophe for the portfolio's feature (efficient, non-efficient and opportunity or pseudo-efficient), employing four control factors: return, variance, transaction costs and risk aversion.

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Date created

• 1986

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• Document

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• Processing documentation available at: https://wiki.albany.edu/display/SCA/Processing+Ingested+Digital+Files

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• Creative Commons BY-NC-ND Attribution-NonCommercial-NoDerivs 4.0 International

  
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Collection

System Dynamic Society Records

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• This collection is part of the University Archives