An introduction to continuous-time stochastic processes. Theory, models, and applications to finance, biology, and medicine. (Q5894904)

From the authors' preface: The book is a systematic, rigorous, and self-consistent introduction to the theory of continuous-time stochastic processes. It is an account of fundamental concepts as they appear in relevant modern applications and literature. Proofs are often omitted as technicalities might distract the reader from a conceptual approach. They are produced whenever they may serve as a guide to the introduction of new concepts and methods towards the applications; otherwise, explicit references to standard literature are provided. The book addresses three main groups: first, mathematicians working in a different field; second, other scientists and professionals from a business or academic background; third, graduate or advanced undergraduate students of a quantitative subject related to stochastic theory and/or applications. The book is divided into three main parts. In Part I, comprising Chapters 1--4, the authors introduce the foundations of the mathematical theory of stochastic processes and stochastic calculus, thus providing tools and methods needed in Part II (Chapters 5 and 6), which is dedicated to major scientific areas of applications. The third part consists of appendices, each of which gives a basic introduction to a particular field of fundamental mathematics (like measure, integration, metric spaces, etc.) and explains certain problems in greater depth (e.g., stability of ODEs) than would be appropriate in the main part of the text. In Chapter 1 the fundamentals of probability are provided following a standard approach based on Lebesgue measure theory due to Kolmogorov. Here the guiding textbook on the subject is the excellent monograph by \textit{M. Métivier} [``Notions fondamentales de la théorie des probabilités'' (1968; Zbl 0169.48601)]. Basic concepts from Lebesgue measure theory are furthermore provided in Appendix A. Chapter 2 gives an introduction to the mathematical theory of stochastic processes in continuous time, including basic definitions and theorems on processes with independent increments, martingales, and Markov processes. The two fundamental classes of processes, namely Poisson and Wiener, are introduced as well as the larger, more general, class of Lévy processes. Further, a significant introduction to marked point processes is also given as a support for the analysis of relevant applications. Chapter 3 is based on Itô theory. The authors define the Itô integral, some fundamental results of Itô calculus, and stochastic differentials including Itô's formula, as well as related results like the martingale representation theorem. Chapter 4 is devoted to the analysis of stochastic differential equations driven by Wiener processes and Itô diffusions, and demonstrates the connections with partial differential equations of second order, via Dynkin and Feynman-Kac formulae. Chapter 5 is dedicated to financial applications. It covers the core economic concept of arbitrage-free markets and shows the connection with martingales and Girsanov's theorem. It explains the standard Black-Scholes theory and relates it to Kolmogorov's partial differential equations and the Feynman-Kac formula. Furthermore, extensions and variations of the standard theory are discussed as well as interest rate models and insurance mathematics. Chapter 6 presents fundamental models of population dynamics such as birth and death processes. Furthermore, it deals with an area of important modern research, namely the fundamentals of self-organizing systems, in particular focusing on the social behavior of multiagent systems, with some applications to economics (``price herding''). It also includes a particular application to the neurosciences, illustrating the importance of stochastic differential equations driven by both Poisson and Wiener processes. Problems and additions are proposed at the end of the volume, listed by chapter.