Captive diffusions and their applications to order-preserving dynamics

Abstract

We propose a class of stochastic processes that we call captive diffusions, which evolve within measurable pairs of càdlàg bounded functions that admit bounded right-derivatives at points where they are continuous. In full generality, such processes allow reflection and absorption dynamics at their boundaries—possibly in a hybrid manner over non-overlapping time periods—and if they are martingales, continuous boundaries are necessarily monotonic. We employ multi-dimensional captive diffusions equipped with a totally ordered set of boundaries to model random processes that preserve an initially determined rank. We run numerical simulations on several examples governed by different drift and diffusion coefficients. Applications include interacting particle systems, random matrix theory, epidemic modelling and stochastic control.