A Review of some Applications of Stochastic Processes in Economic Theory.
Abstract
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)
Document Details
- Document Type
- Technical Report
- Publication Date
- Jun 01, 1969
- Accession Number
- AD0857548
Entities
People
- Maxie Joel Peterson
Organizations
- Air Force Institute of Technology