The Asset Model
Although the text above referred to "random variations", the stochastic model does not just use any arbitrary set of values. The asset model is based on detailed studies of how markets behave, looking at averages, variations, correlations, and more.
The models and underlying parameters are chosen so that they fit historical economic data, and are expected to produce meaningful future projections.
There are many such models, including the Wilkie Model, the Thompson Model and the Falcon Model.
Read more about this topic: Stochastic Modelling (insurance)
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