|Title / Titel||Evolutionary Finance|
|Abstract (PDF, 14 KB)|
|Summary / Zusammenfassung||The idea of this project is to apply evolutionary dynamics (mutation and selection) to study the evolution of trading strategies and the evolution of financial innovations.
We believe that thinking in evolutionary terms like strategies, market selection and mutation is an appropriate framework for finance. In this view, for example, a stock market is understood as a heterogeneous population of frequently interacting portfolio strategies in competition for market capital. Market selection is perhaps most severe in these markets and innovations, respectively mutations, occur frequently. The aim of our project is to build a Darwinian theory of portfolio selection.
A Darwinian theory of asset markets seems to describe very well a modern asset market in which most of the available capital is invested by delegated management. Indeed investors typically choose funds by the portfolio rules, also called "styles", according to which the money is invested. Style consistency appears nowadays to be one of the most important features in monitoring fund managers. Hedge funds are a sector of the financial market that can perfectly be described by our model. Moreover, using functions that describe the flow of wealth between hedge fund strategies our model can also be used to give good predictions of asset returns for sectors quite different to the hedge fund business.
|Publications / Publikationen||„An Application of Evolutionary Finance to Firms Listed in the Swiss Market Index”, joint with Klaus Reiner Schenk-Hoppé and Martin Stalder.
Swiss Journal of Economics and Statistics 2002, Vol 138(4), pp. 465-487.''Evolution of Trading Strategies in Incomplete Markets: A Global Stability Result”, joint with Igor Evstigneev and Klaus Schenk-Hoppé, Mathematical Finance 2002 Vol.12 No 4.''An Evolutionary Approach to Financial Innovations'', joint with M.-O. Bettzüge, The Review of Economic Studies 2000, 68 No 3,pp.493-522.Weitere Informationen
|Project leadership and contacts /
Projektleitung und Kontakte
|Other links to external web pages||http://www.evolutionaryfinance.ch/team/|
|Funding source(s) /
|SNF (Personen- und Projektförderung)
|Duration of Project / Projektdauer||Nov 2001 to Oct 2005|