A comparative study of three stochastic approximation methods with application on regime switching process

Abstract

The clamour for stock Market business has been on the increase in recent times. As a result, there is the urgent need to study certain tools that enhance positive analysis of the market for higher gains. In the light of this, this article focused on the simulation of Runge-Kutta, Milstein and Taylor’s methods on Regime Switching Process using MAPLE 18. It equally considered the volatility rate of the stock market by simulating Runge-Kutta, Milstein and Taylor’s methods with application on Regime Switching Process. We compared the results in the case of high volatility with zero drift and also high drift with low volatility. Our findings showed that RungeKutta method has the best prediction power of volatility in stock market followed by Milstein and Taylor’s method on Regime Switching Process. Based on these findings, we recommend the onward adoption and application of Runge-Kutta method by stock investors for the smooth solving of instability problems of stock market especially on regime switching process.