IDEAS home Printed from https://ideas.repec.org/a/nea/journl/y2025i66p196-222.html
   My bibliography  Save this article

Evolutionary and agent-based computational finance: The new paradigms for asset pricing

Author

Listed:
  • Pastushkov, A.

    (International Laboratory for Experimental and Behavioural Economics, HSE University, Moscow, Russia)

Abstract

Since the 1980s asset pricing in the traditional neoclassical paradigm has been confronting empirical evidence contradicting both the predictions of the models as well as their microfoundations. Simultaneously, the market microstructure literature started probing the details of the trading process, turning the spotlight onto the effects of asymmetric information, clearing mechanisms and agents' learning and belief formation. These details, which were "abstracted away" in the earlier models, are becoming ever more important as the complexity of markets grows due to proliferation of algorithmic and high frequency trading and markets turn into ecologies of strategic, but not necessarily perfectly rational, co-evolving agents. In this review article I argue that the paradigms of agent-based and evolutionary finance are ideally suited to handle the modelling of markets as these complex ecologies. I review the most prominent contributions of evolutionary and agent-based modelling to asset pricing, specifically, categorizing them into three main streams: the research on the effects of institutional details of the markets, the research on the effects of agent heterogeneity, and the research of market selection. Furthermore, I argue that further progress can be made by combining the evolutionary and agent-based paradigms and highlight research questions for which such a mixed-method approach is likely to be the most fruitful.

Suggested Citation

  • Pastushkov, A., 2025. "Evolutionary and agent-based computational finance: The new paradigms for asset pricing," Journal of the New Economic Association, New Economic Association, vol. 66(1), pages 196-222.
    • Handle: RePEc:nea:journl:y:2025:i:66:p:196-222
    DOI: 10.31737/22212264_2025_1_196-222
    as

    Download full text from publisher

    File URL: http://www.econorus.org/repec/journl/2025-66-196-222r.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.31737/22212264_2025_1_196-222?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    evolutionary finance; agent-based computational finance; asset pricing; simulations; market selection;
    All these keywords.

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nea:journl:y:2025:i:66:p:196-222. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Alexey Tcharykov (email available below). General contact details of provider: https://edirc.repec.org/data/nearuea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.