Stochastic Growth Processes with Exponential Growth Rates

Research output: Chapter in Book/Report/Conference proceedingChapterpeer-review

Abstract

Stochastic growth processes with exponential growth rates are introduced and motivated with examples from stochastic interest rate models. The simplest model of this type is the Black-Derman-Toy (BDT) model, where the interest rate is assumed to follow a geometric Brownian motion. The growth rate of the bank account in the BDT model compounding interest at a stochastic interest rate is computed exactly and shown to have a discontinuous behavior similar to a phase transition.

Original languageEnglish
Title of host publicationSpringerBriefs in Applied Sciences and Technology
Pages19-37
Number of pages19
DOIs
StatePublished - 2022

Publication series

NameSpringerBriefs in Applied Sciences and Technology
ISSN (Print)2191-530X
ISSN (Electronic)2191-5318

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