Evolutionary Finance

Evolutionary nance studies the dynamic interaction of investment strategies in nancialmarkets. This market interaction generates a stochastic wealth dynamics on aheterogenous population of traders through the uctuation of asset prices and theirrandom payos. Asset prices are endogenously determined through short-term marketclearing. Investors' portfolio choices are characterized by investment strategies whichprovide a descriptive model of decision behavior. The mathematical framework ofthese models is given by random dynamical systems. This chapter surveys the recentprogress made by the authors in the theory and applications of evolutionary nancemodels.[...]

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Year of publication:	2008-10-20
Authors:	Evstigneev, Igor’ V. ; Hens, Thorsten ; Schenk-Hoppé, Klaus R.
Institutions:	Institut für Schweizerisches Bankwesen <Zürich>
Subject:	Finanzierung \| finance \| Wohlstand \| wealth \| Investitionsverhalten \| Entscheidungsverhalten

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1 Introduction
1.1 Motivation and background
1.2 Applications and real-world implications
1.3 Structure of chapter
1.4 Dynamics and evolution
1.5 Horse races and the Kelly rule
2 Evolutionary models of nancial markets
2.1 Components of the models
2.2 Discussion of the assumptions
2.3 Outline of the dynamics
3 An evolutionary model with short-lived assets
3.1 The model
3.2 Analysis of local dynamics
3.3 An example
3.4 The generalized Kelly rule
3.5 Global dynamics with adaptive strategies
4 An evolutionary stock market model
4.1 Local dynamics
4.2 Global dynamics with constant strategies
4.3 Kelly rule in general equilibrium
5 Applications
5.1 Simulation studies
5.2 Dynamics of strategies: genetic programming
5.3 Empirical tests of evolutionary asset pricing
6 Continuous-time evolutionary nance
7 Conclusion
References

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