A Review of some Applications of Stochastic Processes in Economic Theory.
AIR FORCE INST OF TECH WRIGHT-PATTERSON AFB OH SCHOOL OF ENGINEERING
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In the paper, two stochastic economic models are reviewed. It contains a review of a simple market with a stochastic adjustment mechanism which yields price deviation as a finite homogeneous Markov chain random walk which is identical to the Ehrenfest model of diffusion. An extension is developed with the result that the price deviation process is a denumerably infinite homogeneous Markov chain. Limits are taken in a certain way to obtain continuous time and state diffusion processes. A stochastic capital growth process is investigated, and economic implications are discussed. The stochastic model employed is a linear birth and death process with immigration Kendall Process. Some restrictions of this process together with suggested modifications for extensions are also discussed. Author
- Economics and Cost Analysis
- Operations Research