Applied Stochastic Processes and Control for Jump-Diffusions: Modeling, Analysis, and Computation

Floyd B. Hanson9780898716337, 0898716330

This self-contained, practical, entry-level text integrates the basic principles of applied mathematics, applied probability, and computational science for a clear presentation of stochastic processes and control for jump-diffusions in continuous time. The author covers the important problem of controlling these systems and, through the use of a jump calculus construction, discusses the strong role of discontinuous and nonsmooth properties versus random properties in stochastic systems. The book emphasizes modeling and problem solving and presents sample applications in financial engineering and biomedical modeling. Computational and analytic exercises and examples are included throughout. While classical applied mathematics is used in most of the chapters to set up systematic derivations and essential proofs, the final chapter bridges the gap between the applied and the abstract worlds to give readers an understanding of the more abstract literature on jump-diffusions. An additional 160 pages of online appendices are available on a Web page that supplements the book. Audience This book is written for graduate students in science and engineering who seek to construct models for scientific applications subject to uncertain environments. Mathematical modelers and researchers in applied mathematics, computational science, and engineering will also find it useful, as will practitioners of financial engineering who need fast and efficient solutions to stochastic problems. Contents List of Figures; List of Tables; Preface; Chapter 1. Stochastic Jump and Diffusion Processes: Introduction; Chapter 2. Stochastic Integration for Diffusions; Chapter 3. Stochastic Integration for Jumps; Chapter 4. Stochastic Calculus for Jump-Diffusions: Elementary SDEs; Chapter 5. Stochastic Calculus for General Markov SDEs: Space-Time Poisson, State-Dependent Noise, and Multidimensions; Chapter 6. Stochastic Optimal Control: Stochastic Dynamic Programming; Chapter 7. Kolmogorov Forward and Backward Equations and Their Applications; Chapter 8. Computational Stochastic Control Methods; Chapter 9. Stochastic Simulations; Chapter 10. Applications in Financial Engineering; Chapter 11. Applications in Mathematical Biology and Medicine; Chapter 12. Applied Guide to Abstract Theory of Stochastic Processes; Bibliography; Index; A. Online Appendix: Deterministic Optimal Control; B. Online Appendix: Preliminaries in Probability and Analysis; C. Online Appendix: MATLAB Programs

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Table of contents :
Applied Stochastic Processes and Control for Jump-Diffusions: Modeling, Analysis, and Computation……Page 1
Contents……Page 8
List of Figures……Page 16
List of Tables……Page 22
Preface……Page 24
1. Stochastic Jump and Diffusion Processes: Introduction……Page 32
2. Stochastic Integration for Diffusions……Page 62
3. Stochastic Integration for Jumps……Page 94
4. Stochastic Calculus for Jump-Diffusions: Elementary SDEs……Page 112
5. Stochastic Calculus for General Markov SDEs: Space-Time Poisson, State-Dependent Noise, and Multidimensions……Page 160
6. Stochastic Optimal Control: Stochastic Dynamic Programming……Page 200
7. Kolmogorov Forward and Backward Equations and Their Applications……Page 224
8. Computational Stochastic Control Methods……Page 250
9. Stochastic Simulations……Page 272
10. Applications in Financial Engineering……Page 318
11. Applications in Mathematical Biology and Medicine……Page 370
12. Applied Guide to Abstract Theory of Stochastic Processes……Page 392
Bibliography……Page 434
Index……Page 454