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Financial Applications: Stock Markets

  1. Shu-Heng Chen

Published Online: 16 MAR 2009

DOI: 10.1002/9780470050118.ecse158

Wiley Encyclopedia of Computer Science and Engineering

Wiley Encyclopedia of Computer Science and Engineering

How to Cite

Chen, S.-H. 2009. Financial Applications: Stock Markets. Wiley Encyclopedia of Computer Science and Engineering. 1227–1244.

Author Information

  1. National Chengchi University, Taipei, Taiwan

Publication History

  1. Published Online: 16 MAR 2009

Abstract

The integration of computer science, computer technology, and finance has given rise to the field known as computational finance. Depending on its involvement in economic theory and its contribution to economic theory, computational finance can be divided into financial engineering and agent-based computational finance. Financial engineering can be defined as the application of computational tools or algorithms to tackle some already existing financial optimization problems, such as forecasting, investment, portfolios, trading, and pricing. These applications usually do not challenge the fundamental principles (assumptions or axioms) from which the optimization problems are derived. They simply take advantage of the increasing computational power to address great technical difficulties inherent in financial optimization, such as nonlinearities and high dimensionality. Compared to financial engineering, agent-based computational finance has a more general goal. It questions the foundations up on which mainstream economics and finance are built, and it reexamines some missing elements, which were absent mainly due to the limited computational resources. Then, by bringing back these elements, agent-based computational finance attempts to provide us with a better understanding of the financial market dynamics.

Keywords:

  • agent-based financial markets;
  • computational intelligence;
  • financial engineering;
  • financial agent engineering;
  • financial econometrics;
  • behavioral finance;
  • social simulation;
  • complex systems;
  • emergent properties;
  • adaptation