DEFINITION of 'Stochastic Modeling'
A method of financial modeling in which one or more variables within the model are random. Stochastic modeling is for the purpose of estimating the probability of outcomes within a forecast to predict what conditions might be like under different situations. The random variables are usually constrained by historical data, such as past market returns.
INVESTOPEDIA EXPLAINS 'Stochastic Modeling'
The Monte Carlo Simulation is an example of a stochastic model used in finance. When used in portfolio evaluation, multiple simulations of the performance of the portfolio are done based on the probability distributions of the individual stock returns. A statistical analysis of the results can then help determine the probability that the portfolio will provide the desired performance.
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The rule of 70 could be used to indicate the approximate number of years that it would take a company's economic growth to ... Read Full Answer >> 
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The rule of 70 is related to the growth rate of a variable because it uses the growth rate in its approximation of the number ... Read Full Answer >> 
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