Nov

15

Ehrenfest Urns, by Bruno Ombreux

November 15, 2006 |

I recently stumbled upon Ehrenfest Urns. The results from their simulations look like tick charts with no drift.

And I am wondering if things like advances-declines, ticky, basically anything in the market that is based on a sum of binary states, could not be modeled as an Ehrenfest process.

Going further, an Orstein-Uhlenbeck process seems better suited to a market drifting up against a wall of fear (fear is the viscosity), than a standard random walk. Why don’t people use these?

I know this sounds like a lot of name-dropping, but this is merely to point out that the science of finance seems very backward. There is still a lot of progress to be made.


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