Chapter 3 - Evolution of the Reserve Accumulation: Stochastic Models

Abstract

This chapter presents a discussion of the interaction between determinism and chance in reserve accumulation evolution. The reserve accumulation process may be considered an information process. This leads to certain connections between subsequent and preceding results. A distinctive feature of models constructed in the form of stochastic differential equations is that their solution is not a deterministic time function but, rather, a random function that changes as the process evolves. Identification is a rather crude procedure for screening models and leaves only those which justify further analysis using more formal and efficient techniques. Linear estimates of the model parameters are different from estimates obtained in the deterministic and stochastic approximation of the observations. The degree of such disparity is illustrated by variances of the stochastic and deterministic approximations with the linear evaluations. The discovery history inherently depends on the exploration strategy in a region.