Evolutionary Computation in Economics and Finance: An Overview of the Book

  • Shu-Heng Chen
Part of the Studies in Fuzziness and Soft Computing book series (STUDFUZZ, volume 100)


Being a start-off of the first volume on evolutionary computation in economics and finance, this chapter proposes an overview of the volume. The 20 contributed chapters of this volume are separated into three parts, namely, games, agent-based modeling and financial engineering. The reader will find himself/herself treading the path of the history of this research area, from the fledgling stage to the burgeoning era.


Genetic Algorithm Genetic Programming Option Price Trading Strategy Implied Volatility 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1.
    Abowd J. M., Kramarz F., Margolis D. N. (1999) High Wage Workers and High Wage Firms. Econometrica 67, 251–333CrossRefGoogle Scholar
  2. 2.
    Allen F., Karajalainen F. (1993) Using Genetic Algorithms to Find Technical Trading Rules. Rodney L. White Center for Financial Research, The Wharton School, Technical Report, 20–93Google Scholar
  3. 3.
    Allen F., Karjalainen R. (1999) Using Genetic Algorithms to Find Technical Trading Rules. Journal of Financial Economics 51(2), 245–271CrossRefGoogle Scholar
  4. 4.
    Arifovic J. (1994) Genetic Algorithms Learning and the Cobweb Model. Journal of Economic Dynamics and Control 18(1), 3–28MATHCrossRefGoogle Scholar
  5. 5.
    Arifovic J. (1995) Genetic Algorithms and Inflationary Economies. Journal of Monetary Economics 36(1), 219–243CrossRefGoogle Scholar
  6. 6.
    Arifovic J. (1996) The Behavior of the Exchange Rate in the Genetic Algorithm and Experimental Economies. Journal of Political Economy 104, 510–541CrossRefGoogle Scholar
  7. 7.
    Arifovic J. (2001) Evolutionary Dynamics of Currency Substitution. Journal of Economic Dynamics and Control 25, 395–417MATHCrossRefGoogle Scholar
  8. 8.
    Arifovic J., Eaton B. C. (1995) Coordination via Genetic Learning. Computational Economics 8(3), 181–203MATHCrossRefGoogle Scholar
  9. 9.
    Arifovic J., Gencay R. (2000) Statistical Properties of Genetic Learning in a Model of Exchange Rate. Journal of Economic Dynamics and Control 24, 981–1005MATHCrossRefGoogle Scholar
  10. 10.
    Arthur W. B. (1992) On Learning and Adaptation in the Economy. Sante FI Economics Research Program Working Paper 92–07–038.Google Scholar
  11. 11.
    Arthur W. B. (1994) Inductive Reasoning and Bounded Rationality. American Economic Association Papers Proceedings 84, 406–411Google Scholar
  12. 12.
    Arthur W. B., Holland J., LeBaron B., Palmer R., Tayler P. (1997) Asset Pricing under Endogenous Expectations in an Artificial Stock Market. In: Arthur W. B., Durlauf S., Lane D. (Eds.), The Economy as an Evolving Complex System II. Addison-Wesley, Reading, MA, 15–44Google Scholar
  13. 13.
    Axelrod R. (1987) The Evolution of Strategies in the Iterated Prisoner’s Dilemma. In: Davis L. (Ed.), Genetic Algorithms and Simulated Annealing. Pittman, London, 32–41Google Scholar
  14. 14.
    Basu N., Pryor R. J. (1997) Growing a Market Economy. Sandia Report SAND-97–2093.CrossRefGoogle Scholar
  15. 15.
    Bauer R. J. Jr., Liepins G. E. (1992) Genetic Algorithms and Computerized Trading Strategies. In: O’leary D. E., Watkins, R. R. (Eds.), Expert Systems in Finance, North Holland.Google Scholar
  16. 16.
    Bauer R. J. Jr. (1994) Genetic Algorithms and Investment Strategies. Wiley, New York.Google Scholar
  17. 17.
    Beltratti A., Margarita S., Tema P. (1996) Neural Networks for Economic and Financial Modelling. Thomson.Google Scholar
  18. 18.
    Bhattacharyya S., Pictet O., Zumbach G. (1998) Representational Semantics for Genetic Programming based Learning in High-Frequency Financial Data. In: Koza J., Banzhaf W., Chellapilla K., Deb K., Dorigo M., Foegl D., Garson N., Goldberg D., Iba H., Riolo R. (Eds.), Proceedings of the Third Annual Genetic Programming Conference. Morgan Kaufmann Publishers, San Francisco, 32–37Google Scholar
  19. 19.
    Brock W.A., Lakonishok J., LeBaron B. (1992) Simple Technical Trading Rules and the Stochastic Properties of Stock Returns. Journal of Finance 47, 1731–1764CrossRefGoogle Scholar
  20. 20.
    Bullard J., Duffy J. (1999) Using Genetic Algorithms to Model the Evolution of Heterogenous Beliefs. Computational Economics 13(1), 41–60MATHCrossRefGoogle Scholar
  21. 21.
    Cacho O., Simmons P. (1999) A Genetic Algorithm Approach to Farm Investment. Australian Journal of Agricultural and Resource Economics 43(3), 305–322CrossRefGoogle Scholar
  22. 22.
    Casti J. (1997) Would-be Worlds: How Simulation is Changing the Frontier of Science. John Wiley & Sons.Google Scholar
  23. 23.
    Chan N. T., LeBaron B., Lo A. W., Poggio T. (1998) Information Disseminatio and Aggregation in Asset Markets with Simple Intelligent Traders. Working Paper, MIT.Google Scholar
  24. 24.
    Chen S. -H. (1998) Modeling Volatility with Genetic Programming: A First Report. Neural Network World 8(2), 181–190Google Scholar
  25. 25.
    Chen S. -H. (2001) Fundamental Issues in the Use of Genetic Programming in Agent-based Computational Economics. In Namatame A. (Ed.), Proceedings of the First International Workshop on Agent-based Approaches in Economic and Social Complex Systems, 175–185Google Scholar
  26. 26.
    Chen S. -H., Lee, W. -C. (1997) Option Pricing with Genetic Algorithms: The Case of European-style Options. In: T. Back (Ed.), Proceedings of the Seventh International Conference on Genetic Algorithms. Morgan Kaufmann Publishers, San Francisco, CA, 704–711Google Scholar
  27. 27.
    Chen S. -H., Yeh C. -H., Lee W. -C. (1998) Option Pricing with Genetic Programming. In: Koza J., Banzhaf W., Chellapilla K., Deb K., Dorigo M., Foegl D., Garson M., Goldberg D., Iba H., Riolo R. (Eds.), Proceedings of the Third Annual Genetic Programming Conference. Morgan Kaufmann Publishers, San Francisco, CA, 32–37Google Scholar
  28. 28.
    Chen S. -H., Lee W. -C, Yeh C. -H. (1999) Hedging Derivative Securities with Genetic Programming. International Journal of Intelligent Systems in Accounting, Finance and Management 8(4), 237–251Google Scholar
  29. 29.
    Chen S. -H., Lin W. -Y., Tsao C. -Y. (1999) Genetic Algorithms, Trading Strategies and Stochastic Processes: Some New Evidence from Monte Carlo Simulations. In: Banzhaf W., Daida J., Eiben A. E., Garzon M. H., Honavar V., Jakiela M., Smith R. E. (Eds.), GECCO-99: Proceedings of the Genetic and Evolutionary Computation Conference. Morgan Kaufmann, 114–121Google Scholar
  30. 30.
    Chen S. -H., Yeh, C. -H. (2001) Evolving Traders and the Business School with Genetic Programming: A New Architecture of the Agent-based Artificial Stock Market. Journal of Economic Dynamics and Control 25, 363–393MATHCrossRefGoogle Scholar
  31. 31.
    Chidambaran N., Lee C, Trigueros J. (1998) An Adaptive Evolutionary Approach to Option Pricing via Genetic Programming. In: Koza J., Banzhaf W., Chellapilla K., Deb K., Dorigo M., Fogel D., Garzon M., Goldberg D., Iba H., Riolo R. (Eds.), Genetic Programming 1998: Proceedings of the Third Annual Conference. Morgan Kaufmann, San Francisco, CA, 187–192Google Scholar
  32. 32.
    Dawid H. (1996) Adaptive Learning by Genetic Algorithms. Springer, Berlin, Heidelberg, New York.MATHCrossRefGoogle Scholar
  33. 33.
    Duffy J. (2001) Learning to Speculate: Experiments with Artificial and Real Agents. Journal of Economic Dynamics and Control 25, 295–319MathSciNetMATHCrossRefGoogle Scholar
  34. 34.
    Epstein J. M., Axtell R. (1996) Growing Artificial Societies: Social Science from the Bottom Up. MIT Press.Google Scholar
  35. 35.
    Green J. (1977) The Non-existence of Informational Equilibria. Review of Economic Studies 44, 451–463MATHCrossRefGoogle Scholar
  36. 36.
    Holland J., Miller J. (1991) Artificial Adaptive Agents in Economic Theory. American Economic Review 81(2), 365–370Google Scholar
  37. 37.
    Hutchinson J., Lo A., Poggio T. (1994) A Nonparametric Approach to the Pricing and Hedging of Derivative Securities via Learning Networks. Journal of Finance 49 June, 851–889CrossRefGoogle Scholar
  38. 38.
    Izumi K., Okatsu T. (1996) An Artificial Market Analysis of Exchange Rate Dynamics. In: Fogel L. J., Angeline P. J., Back T. (Eds.), Evolutionary Programming V. MIT Press, 27–36Google Scholar
  39. 39.
    Kareken J., Wallace N. (1981) On the Indeterminacy of Equilibrium Exchange Rates. Quarterly Journal of Economics 96, 207–222CrossRefGoogle Scholar
  40. 40.
    Keber C. (2000) Option Valuation with the Genetic Programming Approach. In: Abu-Mostafa Y. S., LeBaron B., Lo A. W., Weigend A. S. (Eds.), Computational Finance - Proceedings of the Sixth International Conference. MIT Press, Cambridge, MA, 689–703Google Scholar
  41. 41.
    Kirman A. R, Vriend N. (2001) Evolving Market Structure: An ACE Model of Price Dispersion and Loyalty. Journal of Economic Dynamics and Control 25(3–4), 459–502MATHCrossRefGoogle Scholar
  42. 42.
    Koza J. (1992) A Genetic Approach to Econometric Modelling. In: Bourgine P., Walliser B. (Eds.), Economics and Cognitive Science. Pergamon Press, 57–75Google Scholar
  43. 43.
    Lanquillon C. (1999) Dynamic Aspects in Neural Classification. Intelligent Systems in Accounting, Finance and Managemnet 8(4), 281–296Google Scholar
  44. 44.
    LeBaron B., Arthur W. B., Palmer R. (1999) Time Series Properties of an Artificial Stock Market. Journal of Economic Dynamics and Control 23, 1487–1516MATHCrossRefGoogle Scholar
  45. 45.
    LeBaron B. (2001) Evolution and Time Horizons in an Agent Based Stock Market. Forthcoming in Macroeconomic Dynamics.Google Scholar
  46. 46.
    Lettau M. (1997) Explaining the Facts with Adaptive Agents: The Case of Mutual Fund Flows. Journal of Economic Dynamics and Control 21, 1117–1148MATHCrossRefGoogle Scholar
  47. 47.
    Marimon R., McGrattan E., Sargent T. J. (1990) Money as a Medium of Exchange in an Economy with Artificially Intelligent Agents. Journal of Economic Dynamics and Control 14, 329–373MathSciNetMATHCrossRefGoogle Scholar
  48. 48.
    Marimon R., Spear S. E., Sunder S. (1993) Expectationally Driven Market Volatility: An Experimental Study. Journal of Economic Theory 61, 74–103MATHCrossRefGoogle Scholar
  49. 49.
    Midgley D. F., Marks R. E., Cooper L. G. (1997) Breeding Competitive Strategies. Management Science 43(3), 257–275MATHCrossRefGoogle Scholar
  50. 50.
    Miller J. H. (1996) The Coevolution of Automata in the Repeated Prisoner’s Dilemma. Journal of Economic Behavior and Organization 29, 87–112CrossRefGoogle Scholar
  51. 51.
    Neely C, Weller P., Ditmar R. (1997) Is Technical Analysis in the Foreign Exchange Market Profitable? A Genetic Programming Approach. Journal of Financial and Quantitative Analysis 32(4), 405–427CrossRefGoogle Scholar
  52. 52.
    Nikolaev N. Y., Iba H. (2001) Genetic Programming of Polynomial Models for Financial Forecasting. Forthcoming in IEEE Transactions on Evolutionary Computation.Google Scholar
  53. 53.
    Novkovic S. (1998) A Genetic Algorithm Simulation of a Transition Economy: An Application to Insider-privatization in Croatia. Computational Economics 11(3), 221–243MATHCrossRefGoogle Scholar
  54. 54.
    Ostermark R. (1999) Solving Irregulär Econometric and Mathematical Optimization Problems with a Genetic Hybrid Algorithm. Computational Economics 13(2), 103–115CrossRefGoogle Scholar
  55. 55.
    Palmer R. G., Arthur W. B., Holland J. H., LeBaron B., Tayler P. (1994) Artificial Economic Life: A Simple Model of a Stockmarket. Physica D 75, 264–274MATHCrossRefGoogle Scholar
  56. 56.
    Pettey C. B., Lutze M. R., Grefenstette J. J. (1987) A Parallel Genetic Algorithm. In: Proceedings of the Sceond International Conference on Genetic Algorithms, 155–161Google Scholar
  57. 57.
    Riechmann T. (1999) Learning and Behavioral Stability - An Economic Interpretation of Genetic Algorithms. Journal of Evolutionary Economics 9, 225–242CrossRefGoogle Scholar
  58. 58.
    Rudolph G. (1994) Convergence Properties of Canonical Genetic Algorithms. IEEE Transaction on Neural Networks 5(1), 96–101CrossRefGoogle Scholar
  59. 59.
    Sargetn T. J. (1993) Bounded Rationality in Macroeocnomics. Oxford.Google Scholar
  60. 60.
    Smith V. L., Suchanek G. L., Williams A. W. (1988) Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets. Econometrica 56(6), 1119–1152CrossRefGoogle Scholar
  61. 61.
    Szpiro G. (1997) The Emergence of Risk Aversion. Complexity 2(4), 31–39MathSciNetCrossRefGoogle Scholar
  62. 62.
    Tayler P. (1995) Modelling Artificial Stocks Markets Using Genetic Algorithms. In: Goonatilake S., Treleaven P. (Eds.), Intelligent Systems for Finance and Business, Wiley, New York, NY, 271–288Google Scholar
  63. 63.
    Vallee T., Basar T. (1999) Off-line Computation of Stackelberg Solutions with the Genetic Algorithm. Computational Economics 13(3), 201–209MATHCrossRefGoogle Scholar
  64. 64.
    Waldrop M. M. (1992) Complexity: The Emerging Science at the Edge of Order and Chaos. Simon and Schuster.Google Scholar
  65. 65.
    Wolpert D. H., Macready W. G. (1997) No Free Lunch Theorem for Optimization. IEEE Transactions on Evolutionary Computation 1(1), 67–82CrossRefGoogle Scholar
  66. 66.
    Yao X. (1993) A Review of Evolutionary Artificial Neural Netowrks. International Journal of Intelligent Systems 8(4), 539–567CrossRefGoogle Scholar
  67. 67.
    Yao X., Darwen P. J. (1994) An Experimental Study of N-person Iterated Prisoner’s Dilemma Games. Informatica 18, 435–450MATHGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2002

Authors and Affiliations

  • Shu-Heng Chen
    • 1
  1. 1.AI-ECON Research Center, Department of EconomicsNational Chengchi UniversityTaipeiTaiwan

Personalised recommendations