Questions tagged [stochastic-processes]

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Stochastic Dynamic Programming: Deriving the Steady-State for a Lottery

I am working through the basic examples of the stochastic RBC models in the book by McCandless (2008): The ABCs of RBCs, pp. 71 - 75 A Standard Stochastic Dynamic Programming Problem Here is a ...
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Generalization of Tauchen 1986 approach to a case of time-varying volatility

My question is about generalization of Tauchen'86 approach to a case of time-varying volatility. Say, I have a process $$z_{t+1}=\rho z_t+\sigma_t \varepsilon_{t+1}$$ where $\varepsilon\sim \mathcal{...
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How to use the Girsanov theorem to prove $\hat{W_t}$ is a $\hat{\mathbb P}$-Brownian motion?

Let $T > 0$, and let $(\Omega, \mathscr F, \{\mathscr F_t\}_{t \in [0,T]}, \mathbb P)$ be a filtered probability space where $\mathbb P = \tilde{\mathbb P}$ (risk-neutral measure) and $\mathscr F_t ...
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Stochastic process difference equation: stationary distribution

How can I find the stationary distribution (as t goes to infinity) of stochastic difference equations in the form: $x_{t+1} = a*x_t + b*N(0,1)$ where N(0,1) is a standard normal pdf I have ...