Evolutionary Game Analysis of Financial Innovation and Regulation

Abstract

Financial innovation and financial supervision promote each other mutually. Financial regulation is the motive of financial innovation furthers the improvement of financial regulatory system. Since financial crisis due to excessive financial innovation and the lack of financial regulation still happens. This paper build the dynamic game model and then build the asymmetric evolutionary game model between financial innovation institutions and the regulation authority and analysis their long term dynamic game relationship. Under the objectives, it studies the influence factors of financial innovation and regulation and the interaction between these factors. Through the equilibrium analysis of the game, the paper draws the conclusion that regulators can design the embedded regulatory system. Through the asymmetric evolutionary game analysis, the paper derived the long-term evolutionary stable equilibrium of the innovation and supervision. Finally, the paper gives some suggestions on how to strength the regulation for financial innovation.