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2.11. Markov Chains

Question:
Can I use @RISK to build a model with Markov chains?

Response:
With @RISK, either alone or in combination with PrecisionTree, you can create a Markov chain. But you have to create the statefulness yourself, either in Visual Basic code or possibly in RiskData worksheet functions. Please see the attached example, Price Evolution in Markov Chain.

In the @RISK help file and user manual, the section "Reference: Time Series Functions" says "GBM processes have the Markov (memoryless) property, meaning that if the current value is known, the past is irrelevant for predicting the future." But those are unrelated Markovs, not useful in creating a Markov chain.

last edited: 2013-10-22

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