Published Online: 15 SEP 2006
Copyright © 2004 John Wiley & Sons, Ltd
Encyclopedia of Actuarial Science
How to Cite
Sørensen, M. 2006. Diffusion Processes. Encyclopedia of Actuarial Science. 1.
- Published Online: 15 SEP 2006
Diffusion processes form stochastic models for a number of quantities familiar within an actuarial context. Derivative pricing, volatility and interest rates are but a few examples. Moreover, many processes in actuarial science such as the surplus process, can be conveniently approximated by diffusion processes. This article explains the most important concepts needed to describe diffusion processes. It further provides a number of models that have proved their applicability within a financial context such as Brownian motion, Ornstein-Uhlenbeck and Cox-Ingersoll-Ross.
- central limit theorem;
- scale measure;
- speed measure;
- statistical inference;
- stochastic differential equation;
- transition density