Author(s)

Tirupathi Rao Padi, Chiranjeevi Gudala

Department of Statistics, Pondicherry University, Puducherry, India.

In this paper, a bivariate stochastic process with Poisson postulates has been considered to model the incomings, outgoings and mutual transfers of investments between and within the portfolios during an epoch of time “t”. Stochastic differential equations were obtained from the simple differential difference equations during the epoch of time “Δt”. The notion of bivariate linear birth, death and migration process has been utilized for measuring various statistical characteristics among the investments of Long and Short terms. All possible fluctuations in the investment flow have been considered to explore more meaningful assumptions with contemporary marketing environments. Mathematical relations for proposed statistical measures such as average sizes and variances of short term and long-term investments along with the correlation coefficient between them are derived after obtaining the related differential equations. Numerical illustrations were provided for better understanding of the developed models with practitioner’s point of view.

Stochastic Modelling, Portfolio Diversification, Difference-Differential Equations

Padi, T. and Gudala, C. (2017) Stochastic Modelling on Dynamics of Portfolio Diversifications among the Fixed and Operational Investments through Internal Bivariate Linear Birth, Death and Migration Processes. Applied Mathematics, 8, 1211-1225. doi: 10.4236/am.2017.88091.