Stochastic processes play a fundamental role in modeling of uncertain phenomena in business and economics. They are today used in a great variety of models to both understand risk associated with investments and to make better decisions when faced with uncertain, or seemingly random, parameters. Typical application areas include valuation of financial assets, pricing of insurance products, interest rate forecasting, business simulation analysis, optimization under uncertainty and control theory.
- Random Variables
- Conditional probability and conditional expectation
- Exponential distribution and Poisson processes
- Markov chains
- Discrete random walks
- Brownian motion (continuous random walk)
- Applications in finance and economics
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