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| Type | Bachelor's Thesis |
| Scope | Discipline-based scholarship |
| Title | Evolutionary Models in Finance |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 48 |
| Date | 2017 |
| Zusammenfassung | With evolutionary models of financial markets, the concept of evolution found its way from biology over the sociocultural evolution (SE) into finance. This thesis is an analysis of the conceptual characteristics of the Neoclassic Financial Market Model (NFMM) and evolutionary paradigms in finance, namely of the Blume and Easley Model (BEM), the Brock and Hommes Model (BHM), Complexity Economics, and Evolutionary Finance (EF). The defining feature of all evolutionary paradigms in finance is the evolution of the expectation population or the strategy population mainly based on the two opponent forces of mutation and market selection. These forces are two concepts borrowed from the natural evolution (NE) in biology. The different paradigms work with different modeling approaches but also with differing forms of agents’ expectations, and different foci. When it comes to modeling approaches, the BEM clings to the general equilibrium setting introduced to finance with the NFMM. All other abovementioned evolutionary paradigms work with a sequence of short-run equilibria. Agents’ expectations are exogenously given in the NFMM, the BEM, and the BHM, endogenously evolving in CE, and not restricted in any way in EF. Last but not least, all paradigms but EF focus on agents. EF, in contrast, focus on investment strategies. All parallels and differences of these paradigms are discussed in detail and relations between the paradigms, the SE, and the NE are illustrated. Some forms of information transmission of the SE are embedded in the modeled interaction of the focused entity. A specialty of EF is it allowing for information transmission outside the market whereas all other discussed paradigms only allow for information transmission via the market. Finally, it can be concluded that some aspects of the NE–resources, conditions, mutation resulting from the adaptation to the ecosystem, selection, and mass extinction–can serve as a guide for modeling financial markets. However, not all aspects of the NE have a reasonable equivalent in models of financial markets, e.g. mutation resulting from sexual reproduction. Nevertheless, the usage of the notion of evolution led finance on a track that brings it (back) where it belongs: to real sciences. |
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