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Genetic Algorithms and Investment Strategies

ISBN: 978-0-471-57679-2
320 pages
February 1994
Genetic Algorithms and Investment Strategies (0471576794) cover image


When you combine nature's efficiency and the computer's speed, the financial possibilities are almost limitless. Today's traders and investment analysts require faster, sleeker weaponry in today's ruthless financial marketplace. Battles are now waged at computer speed, with skirmishes lasting not days or weeks, but mere hours. In his series of influential articles, Richard Bauer has shown why these professionals must add new computerized decision-making tools to their arsenal if they are to succeed. In Genetic Algorithms and Investment Strategies, he uniquely focuses on the most powerful weapon of all, revealing how the speed, power, and flexibility of GAs can help them consistently devise winning investment strategies. The only book to demonstrate how GAs can work effectively in the world of finance, it first describes the biological and historical bases of GAs as well as other computerized approaches such as neural networks and chaos theory. It goes on to compare their uses, advantages, and overall superiority of GAs. In subsequently presenting a basic optimization problem, Genetic Algorithms and Investment Strategies outlines the essential steps involved in using a GA and shows how it mimics nature's evolutionary process by moving quickly toward a near-optimal solution. Introduced to advanced variations of essential GA procedures, readers soon learn how GAs can be used to:
* Solve large, complex problems and smaller sets of problems
* Serve the needs of traders with widely different investment philosophies
* Develop sound market timing trading rules in the stock and bond markets
* Select profitable individual stocks and bonds
* Devise powerful portfolio management systems
Complete with information on relevant software programs, a glossary of GA terminology, and an extensive bibliography covering computerized approaches and market timing, Genetic Algorithms and Investment Strategies unveils in clear, nontechnical language a remarkably efficient strategic decision-making process that, when imaginatively used, enables traders and investment analysts to reap significant financial rewards.
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Table of Contents


Genetic Algorithms: Survival of the Fittest.

Neural Networks: Brainware.

Chaos Theory: The Order Behind Disorder.

Questions and Answers About Using GAs.


A Genetic Algorithm: Step by Step.

Fine-Tuning the Genetic Algorithm.

GA Applications.

Advanced GA Techniques.


The Lure of Market Timing.

Using GAs to Develop Investment Strategies.

Stock Market Results.

Bond Market Results.

Results for Individual Stocks.

Modifying the Search Procedure.

Other Trading Applications and Conclusions.



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Author Information

About the author RICHARD J. BAUER, JR., is a Certified Financial Analyst as well as an MBA Program Director and Professor in the School of Business and Administration at St. Mary's University in San Antonio, Texas. The author and coauthor of several papers on genetic algorithms, artificial intelligence, and computerized trading strategies, he is a contributor to the book, Expert Systems in Finance.
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