Mean Reverting Stochastic Processes with Applications

Authors
  1. Maybury, D.W.
Corporate Authors
Defence R&D Canada - Center for Operational Research and Analysis, Ottawa ONT (CAN)
Abstract
Stochastic mean reverting processes possess fluctuations that track an equilibrium level. These processes find applications in fields from mathematical finance to theoretical chemistry, and the mathematical similarities between different stochastic phenomena can help us understand difficult problems in operations research. Given that stochastic mean reversion naturally finds a home in the field of queueing [1]-[3], this note aims to leverage these techniques for problems encountered by DRDC CORA. To motivate the application of stochastic mean reversion for DND problems, we will provide a concrete example by building a stochastic model of the CH-149 Cormorant operational availability (Ao), generating the underlying conditional probability distribution for the random process driving the data in complete closed analytic form. The result will also equip us with a powerful forecasting tool. Finally, following [4], we will derive the theoretical relationships required to extend the availability model to more complicated scenarios.
Report Number
DRDC-CORA-TN-2009-008 — Technical Note
Date of publication
01 Apr 2009
Number of Pages
34
DSTKIM No
CA032641
CANDIS No
531842
Format(s):
CD ROM

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