Stochastic Price Models
Price models approximate uncertain evolution at a chosen horizon. A model for latent value, transaction prices, and discrete quotes need not be the same.
Central questions
- Which price process is being modeled?
- Are increments continuous, jumping, mean-reverting, or regime-dependent?
- Which empirical feature and decision require the model?
Planned model
Compare random walk, diffusion, jump, mean-reverting, and regime-switching paths after adding tick rounding and bid-ask bounce.