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 Black–Derman–Toy model Black–Karasinski model Cox–Ingersoll–Ross model Ho–Lee model Hull–White model Kalotay–Williams–Fabozzi model Merton model Rendleman–Bartter model Vasicek model
Multi-factor models Chen model Longstaff–Schwartz model
Term structure models LIBOR market model (Brace Gatarek Musiela model)
Stock price models Binomial model Black–Scholes model (geometric Brownian motion)
Inflation models
Multi-asset models ALM.IT (GenRe) model Cairns model FIM-Group model Global CAP:Link model Ibbotson and Sinquefield model Morgan Stanley model Russel–Yasuda Kasai model Smith's jump diffusion model TSM (B & W Deloitte) model Watson Wyatt model Whitten & Thomas model Wilkie investment model Yakoubov, Teeger & Duval model
Further reading Wilkie, A. D. (1984) "A stochastic investment model for actuarial use", Transactions of the Faculty of Actuaries, 39: 341-403 Østergaard, Søren Duus (1971) "Stochastic Investment Models and Decision Criteria", The Swedish Journal of Economics, 73 (2), 157-183 JSTOR 3439055 Sreedharan, V. P.; Wein, H. H. (1967) "A Stochastic, Multistage, Multiproduct Investment Model", SIAM Journal on Applied Mathematics, 15 (2), 347-358 JSTOR 2946287