AbstractEvolutionary finance studies the dynamic interaction of investment strategies in financial markets. This market interaction generates a stochastic wealth dynamics on a heterogenous population of traders through the fluctuation of asset prices and their random payoffs. Asset prices are endogenously determined through short-term market clearing. Investors' portfolio choices are characterized by investment strategies which provide a descriptive model of decision behavior. The mathematical framework of these models is given by random dynamical systems. This chapter surveys the recent progress made by the authors in the theory and applications of evolutionary finance models. An introduction to and the motivation of the modeling approach is followed by a theoretical part which presents results on the market selection (and co-existence) of investment strategies, discusses the relation to the Kelly rule and implications for asset pricing theory, and introduces a continuous-time mathematical finance version. Applications are concerned with simulation studies of the market dynamics, empirical estimation of asset prices and their dynamics, and the evolution of investment strategies using genetic programming.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 08-14.
Length: 60 pages
Date of creation: May 2008
Date of revision:
Evolutionary Finance; Wealth Dynamics; Market Interaction;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-30 (All new papers)
- NEP-CMP-2008-07-30 (Computational Economics)
- NEP-EVO-2008-07-30 (Evolutionary Economics)
- NEP-FMK-2008-07-30 (Financial Markets)
- NEP-ORE-2008-07-30 (Operations Research)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Igor Evstigneev & Thorsten Hens & Klaus Reiner Schenk-Hoppé, 2003.
"Evolutionary Stable Stock Markets,"
03-39, University of Copenhagen. Department of Economics.
- Anufriev, Mikhail & Bottazzi, Giulio, 2010. "Market equilibria under procedural rationality," Journal of Mathematical Economics, Elsevier, vol. 46(6), pages 1140-1172, November.
- Anufriev, M. & Bottazzi, G. & Marsili, M. & Pin, P., 2011.
"Excess Covariance and Dynamic Instability in a Multi-Asset Model,"
CeNDEF Working Papers
11-09, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Anufriev, Mikhail & Bottazzi, Giulio & Marsili, Matteo & Pin, Paolo, 2012. "Excess covariance and dynamic instability in a multi-asset model," Journal of Economic Dynamics and Control, Elsevier, vol. 36(8), pages 1142-1161.
- Jan PALCZEWSKI & Klaus Reiner SCHENK-HOPPE, .
"From Discrete to Continuous Time Evolutionary Finance Models,"
Swiss Finance Institute Research Paper Series
08-30, Swiss Finance Institute.
- Palczewski, Jan & Schenk-Hoppé, Klaus Reiner, 2010. "From discrete to continuous time evolutionary finance models," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 913-931, May.
- Carl Chiarella & Roberto Dieci & Xue-Zhong He & Kai Li, 2012.
"An Evolutionary CAPM Under Heterogeneous Beliefs,"
Research Paper Series
315, Quantitative Finance Research Centre, University of Technology, Sydney.
- Palczewski, Jan & Schenk-Hoppé, Klaus Reiner, 2010.
"Market selection of constant proportions investment strategies in continuous time,"
Journal of Mathematical Economics,
Elsevier, vol. 46(2), pages 248-266, March.
- Jan PALCZEWSKI & Klaus Reiner SCHENK-HOPPE, 2008. "Market Selection of Constant Proportions Investment Strategies in Continuous Time," Swiss Finance Institute Research Paper Series 08-29, Swiss Finance Institute.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marilyn Barja).
If references are entirely missing, you can add them using this form.