Research On Financial Regulation And Financial Innovation Based On Evolutionary Game Theory

After the global financial crisis triggered by US subprime crisis, people began to re-examine the relationship between financial regulation and financial innovation. Reform of financial regulation is always closely linked to financial crisis, especially in US. The Glass-Steagall Act, issued after the 1930 crisis, laid the foundation for Separate Operation of US financial development. Due to the lack of financial innovation regulation and financial deregulation since 1970s, the huge derivatives bubbles formed and gradually evolved into subprime crisis. US issued the Dodd-Frank Act in July 2010, and then began to rebuild financial regulation system. Financial regulation and financial innovation tend to promote each other’s development, which formed a regulation-innovation re-regulation-re-innovation" dynamic game process.Under the background above, the paper carries out studies from three aspects:firstly, on the basis of relevant literature, the paper defines the concept of financial regulation and financial innovation, elaborates the relevant theory, and also analyzes the relationship between financial regulation and financial innovation briefly. Secondly, based on the replicator dynamics equation in evolutionary game theory, the paper establishes evolutionary game model of regulation institutions group and financial institutions group. Through solving theoretical model, the paper obtains the evolutionary stable strategy of regulation institutions group, financial institutions group and the two together respectively. Finally, based on the theoretical model, we use annual data in the period of 1947-2007, or rather, the proportion that added value of US financial sector accounts for GDP, to empirically study evolutionary stable strategy. The results show that there was a mutual relationship between US financial regulation and financial innovation, regulation drove innovation, innovation led to regulation, re-regulation drove re-innovation in financial institutions, and the repeated game formed a dynamic adjustment process.The thesis contains two aspects of innovation:Firstly, the paper constructs evolutionary game model of regulation institutions group and financial institutions group. Previous studies focused more on individuals, while the evolutionary game analysis between groups is closer to reality. Secondly, we use the relevant data to conduct quantitative analysis of the income from financial regulation and financial innovation.