File Name: Forecasting – Stochastic Processes
Location: Modeling Toolkit | Forecasting | Stochastic Processes
Brief Description: This sample model illustrates how to simulate Stochastic Processes (Brownian Motion Random Walk, Mean-Reversion, Jump-Diffusion, and Mixed Models)
Requirements: Modeling Toolkit, Risk Simulator
A stochastic process is a sequence of events or paths generated by probabilistic laws. That is, random events can occur over time but are governed by specific statistical and probabilistic rules. The main stochastic processes include Random Walk or Brownian Motion, Mean-Reversion, and Jump-Diffusion. These processes can be used to forecast a multitude of variables that seemingly follow random trends but yet are restricted by probabilistic laws. We can use Risk Simulator’s Stochastic Process module to simulate and create such processes. These processes can be used to forecast a multitude of time-series data including stock prices, interest rates, inflation rates, oil prices, electricity prices, commodity prices, and so forth.
