Evolutionary Simulation of Asset Trading Strategies

Christian Rieck
Institut für Kapitalmarktforschung, University of Frankfurt
Rieck@wiwi.Uni-Frankfurt.de

Abstract

Elementary asset trading strategies are represented by short computer programs and interact in a simulated call market. Analogous to biological evolution, the more successful programs ``reproduce", i.e., their code is copied, while the less successful programs are deleted. In the reproduction process all strategy parameters are subject to mutation. After a phase of adaptation, fundamentally oriented trading strategies generally dominate the population, but the market price does not equal the long run fundamental value and a population of fundamentalists can be overridden by positive feedback traders, although this may lead to the extinction of the whole population.