Stochastic investment model

A stochastic investment model tries to forecast how returns and prices on different assets or asset classes, (e. g. equities or bonds) vary over time. Stochastic models are not applied for making point estimation rather interval estimation and they use different stochastic processes. Investment models can be classified into single-asset and multi-asset models. They are often used for actuarial work and financial planning to allow optimization in asset allocation or asset-liability-management (ALM).

Single-asset models

Interest rate models

Interest rate models can be used to price fixed income products. They are usually divided into one-factor models and multi-factor assets.

One-factor models

• Merton model
• Vasicek model
• Rendleman–Bartter model
• Hull–White model
• Cox–Ingersoll–Ross model
• Ho–Lee model
• Hull–White model
• Black–Derman–Toy model
• Black–Karasinski model
• Kalotay–Williams–Fabozzi model

Multi-factor models

• Longstaff–Schwartz model
• Chen model

Term structure models

• LIBOR market model (Brace Gatarek Musiela model)

Stock price models

• Black–Scholes model (geometric Brownian motion)
• Binomial model

Inflation models

Multi-asset models

• Wilkie investment model
• Ibbotson and Sinquefield model
• FIM-Group model
• Global CAP:Link model
• Russel–Yasuda Kasai model
• Watson Wyatt model
• TSM (B & W Deloitte) model
• ALM.IT (GenRe) model
• Morgan Stanley model
• Smith's jump diffusion model
• Yakoubov, Teeger & Duval model
• Cairns model
• Whitten & Thomas model