A jump process is a type of stochastic process that has discrete movements, called jumps, rather than small continuous movements.
In physics, jump processes result in diffusion. On a microscopic level, they are described by jump diffusion models.
In finance, various stochastic models are used to model the price movements of financial instruments; for example the Black Scholes model for pricing options assumes that the underlying instrument follows a traditional diffusion process, with small, continuous, random movements. John Carrington Cox, Stephen Ross and Nassim Nicholas Taleb proposed that prices actually follow a 'jump process'. The Cox-Ross-Rubinstein binomial options pricing model formalizes this approach. This is a more intuitive view of financial markets, with allowance for larger moves in asset prices caused by sudden world events.
Robert C. Merton extended this approach to a hybrid model known as jump diffusion, which states that the prices have large jumps followed by small continuous movements.
Famous quotes containing the words jump and/or process:
“I wonder, Diz, if this Don Quixote hasn’t got the jump on all of us. Wonder if it isn’t a curse to go wised up like you and me.”
—Sidney Buchman (1902–1975)
“It is part of the nature of consciousness, of how the mental apparatus works, that free reason is only a very occasional function of people’s “thinking” and that much of the process is made of reactions as standardized as those of the keys on a typewriter.”
—John Dos Passos (1896–1970)