Tagged: brownian motion

The probability of going through a bad patch 2

The probability of going through a bad patch

We’ve heard it: people that invest on the stock market or that gamble in lotteries, casinos, etc usually say “I’m going through a bad patch” (or bad spell). That is, they have been losing money for a while, but hey! better times are ahead and there’s no reason to quit. Are they sure? Are better times ahead? How close is...

Brown’s observations on Brownian motion 0

Brown’s observations on Brownian motion

In 1828, Robert Brown published the manuscript entitled “A brief account of microscopical observations made in the months of June, July and August, 1827, on the particles contained in the pollen of plants; and on the general existence of active molecules in organic and inorganic bodies” in the Edinburgh new Philosophical Journal [download it in pdf format here]. He suspended some of the...

Introduction to stochastic differential equations 5

Introduction to stochastic differential equations

Stochastic differential equations (SDEs) are basically  inhomogenous ordinary differential equations that depend on an external stochastic process.  Typically, that stochastic process is white noise, which is the mathematical idealization of the noise found in nature. This idealization is handy, because it simplifies the mathematical description. However, this idealization comes at some cost: traditional calculus is no longer valid and you...

Writing bad letters of recommendation: the story of Bachelier and Lévy 2

Writing bad letters of recommendation: the story of Bachelier and Lévy

  Take a coin and toss it a number N of times in a time interval of duration T.  Suppose that every time you get head you win a euros and that you lose the same amount of money when you get tail. Then your capital is a random process with ups and dows like this: This process is a stochastic process usually called “Random...

Humans are superdiffusive 0

Humans are superdiffusive

When tea is poured in a cup of hot water, we observe a phenomenon called diffusion: in the end particles of tea spread evenly throughout the mass of water and we enjoy our cup of tea. Diffusion occurs as a result of the second law of thermodynamics (increase of entropy) and can be modeled quantitatively using the diffusion equation (or heat equation). This...