Post by Sapphire Capital on Aug 26, 2008 20:56:44 GMT 4
Evolutionary Finance
Igor V. Evstigneev
University of Manchester - School of Social Sciences
Thorsten Hens
Swiss Banking Institute; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute (Zurich Center)
K. R. Schenk-Hoppé
Leeds University Business School (LUBS); University of Leeds - School of Mathematics
May 08, 2008
Swiss Finance Institute Research Paper No. 08-14
Abstract:
Evolutionary 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.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1155014_code623849.pdf?abstractid=1155014&mirid=2
Igor V. Evstigneev
University of Manchester - School of Social Sciences
Thorsten Hens
Swiss Banking Institute; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute (Zurich Center)
K. R. Schenk-Hoppé
Leeds University Business School (LUBS); University of Leeds - School of Mathematics
May 08, 2008
Swiss Finance Institute Research Paper No. 08-14
Abstract:
Evolutionary 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.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1155014_code623849.pdf?abstractid=1155014&mirid=2