Finite-type invariants of classical and virtual knots

We observe that any knot invariant extends to virtual knots. The isotopy classification problem for virtual knots is reduced to an algebraic problem formulated in terms of an algebra of arrow diagrams. We introduce a new notion of finite type invariant and show that the restriction of any such invariant of degree n to classical knots is an invariant of degree ⩽n in the classical sense. A universal invariant of degree ⩽n is defined via a Gauss diagram formula. This machinery is used to obtain explicit formulas for invariants of low degrees. The same technique is also used to prove that any finite type invariant of classical knots is given by a Gauss diagram formula. We introduce the notion of n-equivalence of Gauss diagrams and announce virtual counter-parts of results concerning classical n-equivalence.